BUY on SBI Life Insurance - Growth returns - HDFC Securities

Mr. Madhukar Ladha, Institutional Research Analyst, HDFC Securities

With business recovery underway (3QFY21 APE: +4.3/29.6% YoY/QoQ), along with an increasing adj. VNB (VNB: +7.1/37.5% YoY/QoQ), we believe SBILIFE is on track to deliver a respectable FY21E (APE/VNB 0.4/3.9% YoY). We are fans of the strong distribution footprint of its parent SBI (24k+ branches), improving protection share (9MFY21: 11.1%, +314bps YoY), and lowest operating cost ratios (9MFY21: 8.5%, -150bps YoY). We expect SBILIFE to deliver a healthy FY21-23E VNB CAGR of 11.4% and RoEVs of ~15.0-16.7% over FY21-23E. We retain our BUY rating on SBILIFE with an increased TP of Rs 1,170 (Sep-22E EV + 26.3x Sep-22E VNB). The stock is currently trading at FY22/23E P/EV of 2.4/2.1x and P/VNB of 20.1/15.6x. Lower growth, renewals, and protection share are key risks.

3QFY21 highlights: Total APE at Rs 33.0bn (4.3/29.6% YoY/QoQ) was in line with estimates. Increased awareness and company's strong focus resulted in the YoY doubling of individual protection, with share increasing by 300bps YoY to 6.3%. ROP product is driving growth. ULIPs/NPAR stole the show with growth of 48.0/50.0% QoQ; this resulted in 854/140bps QoQ increase in the share to 68.6/10.3%. Persistency during 9MFY21 improved across cohorts except for the 49th month on a YoY basis and was reflected in strong renewal premiums, which grew 24.3/18.0% YoY/QoQ. Total expense ratio was contained at 8.4% (-107/+62bps YoY/QoQ) as the company continues to keep a strong vigil on costs. Commission ratio increased 61bps QoQ to 3.8% as growth returned. Solvency improved to 234% (+400bps YoY) as equity markets recovered. AUM growth was strong at 27.6/12.4% YoY/QoQ.

Adj. VNB margin (at ETR) at 21.5% improved 56/123bps YoY/QoQ, while reported VNBM (at ATR) was at 19.3% (+100bps YoY). Reported margin improved 100bps YoY, mainly due to (1) mix change (+370bps, higher share of NPAR savings and protection), (2) change in operating assumptions (-110bps), and (3) change in economic assumptions (-150bps, mainly risk-free rate). Protection contributes 26-30% to VNB, implying a margin of ~63.9%.

Outlook: We expect SBILIFE to deliver an APE/VNB growth of 0.4/3.9% in FY21E. The company is in the process of obtaining approvals on its revised protection product filing- expected to be very competitively priced. Overall, we expect FY21E-23E APE/VNB CAGR of 10.3/11.4% YoY.

Shares of SBI Life Insurance Company Ltd was last trading in BSE at Rs.862.85 as compared to the previous close of Rs. 861.6. The total number of shares traded during the day was 60210 in over 4569 trades.

The stock hit an intraday high of Rs. 881.6 and intraday low of 853.2. The net turnover during the day was Rs. 52188291.

Source : Equity Bulls

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