Analyst Corner: Maintain ‘buy’ on SBI Life Insurance with TP at Rs 1,000

SBILIFE reported strong protection trends in both Retail and Group Protection, while the trend in ULIP remained tepid. 1HFY21 VNB margins remained broadly stable at 18.8% (vs 18.7% in 1QFY21), supported by an improving business mix. Persistency improved across cohorts, with the highest improvement seen in 61st month (by 340bp YoY to 60.9% in 1HFY21), which aided growth in the Renewal business. The company continues to maintain cost leadership, with the total expense ratio declining to 7.7% (~220bp YoY improvement). 2QFY21 shareholders’ PAT grew 131% year-on-year to ~Rs 3.0 billion (in-line). Overall, we expect SBILIFE to deliver 17% VNB growth over FY20–23E. We further expect VNB margins to improve to ~21% and operating RoEV to sustain at ~18% by FY23E. Maintain ‘buy’.

SBILIFE posted net premium growth of 27% year-on-year, led by single premium growth of 71% year-on-year and renewal premium growth of 28% year-on-year. Persistency improved across cohorts (barring 49th month), with 25th/61st month improving by 140bp/340bp year-on-year in 1HFY21. In 2QFY21, Total APE declined 3.2% year-on-year (15% year-on-year decline in 1HFY21). This was largely weighed by 15% year-on-year decline in the Individual Savings business, with ULIP declining 13% year-on-year. Thus, the share of ULIP declined to ~60% (v/s 66% in 2QFY20). On the other hand, Protection growth stood robust at 70% year-on-year, led by both Retail and Group Protection. Overall, the share of Protection improved to 12.5% over 2QFY21 (v/s 7.1% in 2QFY20 and 8.9% in FY20).
VNB margins on actual tax rate improved to 18.8%, primarily led by an increase in Retail Protection. However, absolute VNB declined 2% YoY (~12% YoY in 1HFY21). On an effective tax rate basis, VNB margins stood at 20.2%, while absolute VNB declined 5% YoY (15% year-on-year in 1HFY21).