SBI Life Insurance Company - Strong all-round performance - ICICI Securities

We maintain BUY on SBI Life Insurance (SBLI) as we remain buoyant about the execution by the company and the available levers for business growth. This has been a constant theme over past three years and remained valid in H1FY21 too. Improving run rate in ULIPs, increase in protection mix, increase in contribution from alternative channels, improvement in persistency, improvement in cost ratio, and lower surrender ratio point to continued strong execution. Available headroom to take price hikes in protection, increasing attachment rates of bank credit customers and growth from other bank partners are additional levers.

- Management maintains target of APE growth in FY21. Basis, H1FY21 performance, SBLI can achieve positive APE with 10%/15% growth in Q3/Q4FY21. Areas of outperformance remain broad-based: 1) individual non-par mix in agency (Rs1.7bn APE in H1FY21 vs Rs2.6bn in FY20); 2) revival of ULIPs (Rs16bn in Q2FY21 ULIP APE vs Rs6bn in Q1FY21) led by bancassurance; 3) increase in individual protection (Rs1.9bn in Q2FY21 APE compared to Rs0.7bn in Q1FY21 and Rs5.1bn in FY20; 4) improving group protection (Rs1.5bn in Q2FY21 APE compared to Rs0.9bn in Q1FY21 and Rs4.5bn in FY20); and 5) calculated VNB in Q2FY21 was Rs.5.4bn vs Rs5.7bn in Q1FY21 and Rs22.2bn in FY20. H1FY21 VNB was Rs8bn vs 9.4bn in H1FY20.

- Operating parameters remain satisfactory. Persistency, solvency as well as opex ratios continue to improve along with surrender ratio and number of trained insurance personnel (details on page no 5). There has also been an increase in mix in distribution channel (ex banca and agency) to 38% of NBP in H1FY21.

- Avoided price hike in protection work for SBLI in Q2FY21 and does that make RoP a better product? SBLI has not taken any price hikes in protection yet. Higher return of premium (RoP) share (85% of protection mix) also reduces the need for price hikes. Volumes drove the entire 58% growth in individual protection APE in Q2FY21. Credit protect too was flat YoY in Q2FY21 with ~46% attachment rates.

- Maintain BUY. Basis effective tax rate, the Embedded Value of SBLI is expected to grow from Rs276.4bn in FY20 to Rs384bn in FY22E driven by addition of Rs42.7bn unwind and Rs48.3bn of VNB, which has grown from Rs16bn in FY18 to Rs22bn in FY20. SBLI currently trades at 2x FY22E P/EV. Maintain BUY with a target price of Rs1,065 (implied 2.8x P/EV). Our assumptions build-in APE growth of 1%/15%, VNB margins of 20%/22.5% and unwind of 7%/7% in FY21E/FY22E. There is a big economic variance in H1FY21 (AUM increased by Rs101bn from market movement in H1FY21). Basis VNB of Rs8bn in H1FY21 and assuming 7.5% unwind, total variance (largely economic) in H1FY21 EV walk would be Rs17bn.

Shares of SBI Life Insurance Company Ltd was last trading in BSE at Rs.774.4 as compared to the previous close of Rs. 778.75. The total number of shares traded during the day was 41668 in over 2979 trades.

The stock hit an intraday high of Rs. 793.9 and intraday low of 771.7. The net turnover during the day was Rs. 32482867.

Source : Equity Bulls

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