SBI Life Insurance Company - Strong performance, attractive valuations (<2 FY23 P/EV) - ICICI Securities

SBI Life (SBLI) reported a robust Q3FY21 with improvement across products (ULIP as well as protection) and distribution (bancassurance/agency) to take 9MFY21 VNB to Rs15.6bn, flat YoY. Management outlook remains strong while revival of ULIPs / credit life, new product launch in protection, and enhanced distribution provide volume as well as margin levers ahead. Maintain BUY.

- Strong increase in bancassurance, protection (individual as well as group) and ULIP in Q3FY21: Q3/9MFY21 bancassurance has grown 8%/(-)10% YoY. Q3/9MFY21 individual protection has grown 100%/41% while group protection has grown from Rs0.9bn in Q1FY21 to Rs1.5bn in Q2FY21 and Rs1.1bn in Q3FY21. In FY21-TD, absolute ULIP APE has risen from Rs6bn in Q1 to Rs16bn in Q2FY21 and Rs24bn in Q3FY21. SBLI distribution increased by 1,000 branches, 16,000 agents and 500 non-SBI bank branches in Q3FY21 compared to Q2FY21. Agency APE grew 39%/(-)10% QoQ/YoY in Q3FY21 while others grew 11%/43% QoQ/YoY in Q3FY21.

- Protection strategy in terms of product/pricing seems to have paid off in Q3FY21. SBLI maintained ~75-80% of TROP in the protection mix with no price hikes taken unlike peers. This strategy has worked well considering that Q3FY21 individual protection grew by 100%/41% in Q3/9MFY21.

- Management outlook remains robust across product categories. Management indicated that credit life volume had become almost flat YoY till Dec'20 and expects growth in the segment by FY21-end. The new pure protection product is expected to be launched in Q4FY21.

- Operating parameters remain on track. Compared to FY20-end, persistency has improved in all but 49th month cohort. 9MFY21 cost ratios ((commission + Opex) / total premiums (including renewals)) now stand at 8.5%.

- Improved product mix leads to flat growth in 9MFY21 VNB (actual tax rate basis) despite 7% YoY decrease in 9MFY21 APE. 9MFY21 VNB stands at Rs15.6bn. Improved product mix and higher volumes have driven 30pbs YoY improvement in VNB margins.

- Revision in operating estimates can provide a positive surprise to VNB by FY21-end. The VNB walk till 9MFY21 continues to have the same assumptions as of FY20-end. As experience improves (persistency, mortality, cost), there is scope for improvement in VNB margins if volumes support in Q4FY21.

- Maintain BUY with a FY23E-based target price of Rs1,223. Basis effective tax rate, the Embedded Value of SBLI is expected to grow from Rs276.4bn in FY20 to Rs441bn in FY23E driven by addition of Rs54bn unwind and Rs57bn of VNB, which has grown from Rs16bn in FY18 to Rs22bn in FY20. VNB margin (basis effective tax) is expected to be 20.5%/ 21.5% / 22.5% in FY21 / 22 / 23. SBLI currently trades at 1.9x FY23E P/EV.

Shares of SBI Life Insurance Company Ltd was last trading in BSE at Rs.861.6 as compared to the previous close of Rs. 879.25. The total number of shares traded during the day was 174279 in over 10248 trades.

The stock hit an intraday high of Rs. 885.45 and intraday low of 838.2. The net turnover during the day was Rs. 150434947.

Source : Equity Bulls

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