SBI Life Insurance - Impressive protection share drives margin beat! - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

The total APE was in line with estimates; however, a rising share of protection (at an all-time high of 13.4% in the mix) resulted in a 160bps margin beat. We are positively surprised with no negative mortality experience in Q1 and management's prudent reserving for any future surprises. The company's three growth levers continue to remain in place - (1) the mammoth distribution network of the parent SBI (24k+ branches); (2) the improving share of protection; and (3) the lowest opex ratio (1QFY22: 10.5%). Following a strong margin beat, we build in higher margins and raise our FY22E/23E estimates. We expect SBILIFE to deliver a healthy FY21-23E VNB CAGR of 19.9% and retain our BUY rating on the stock with an increased TP of INR 1,350 (Mar-22E EV + 23x Mar-23E VNB).

Q1FY22 highlights: The total APE, at INR 16.3bn (2y CAGR -6.8%/+27% YoY), was largely in line with estimates. The protection segment has displayed strong traction, with the share of retail and group protection within the mix at an all-time high of 7.6% and 5.8% respectively. Secular growth was seen in the protection segment, across channels, ranging from ~55-80% YoY. De-growth in NPAR (51% YoY) disappointed; however, annuity continued to aid margins. Persistencies improved across cohorts in the range of 79-419 bps except for the 61st month. Within the channel mix, new corporate partnerships registered an impressive +86% YoY growth.

COVID reserving: As mortality assumptions were strengthened in 4QFY21, SBILIFE did not have any negative mortality experience on an overall basis (demonstrating conservative assumptions). Having said that, SBILIFE created additional COVID reserves to the tune of INR 4.5bn to protect against any negative surprises. COVID claims clocked in at INR 5.7bn (1.8x FY21 claims). Management stated its focus on increasing banca penetration to 100% (from 85% in FY21), given the strong distribution prowess with which it should aid growth. Adj. VNB margin, at 24.1% (on ETR), was ahead of estimates (+160bps), led by protection share swiftly inching up, resulting in VNB growth of 53% YoY.

Shares of SBI Life Insurance Company Ltd was last trading in BSE at Rs. 1105.9 as compared to the previous close of Rs. 1077. The total number of shares traded during the day was 203656 in over 13281 trades.

The stock hit an intraday high of Rs. 1113 and intraday low of 1062.85. The net turnover during the day was Rs. 222816444.

Source : Equity Bulls

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