SBI Life Insurance - Product design changes drive margin miss - HDFC Securities

SBILIFE's total APE was in line with our estimates; however, growth in the protection segment surprised positively despite limited access to physical medicals in the first half of Q4. Higher share of TROP, margin moderation in NPAR savings coupled with tightening of mortality assumptions resulted in lower VNB margins at 26.9% (-84bps). The growth in premium from other channels (including banca ex-SBIN) is heartening, helping mitigate single-channel dependence. The company's three growth levers remain in place: (1) SBI's massive distribution network (24k+ branches); (2) healthy share of protection; and (3) lowest opex ratio amongst peers (FY22: 8.8%). We expect SBILIFE to deliver a healthy FY21-24E VNB CAGR of 25% and retain our BUY rating on the stock with an unchanged TP of INR1,530 (2.9x Sep-23E EV).

- Tepid growth and stable margins: SBILIFE printed total APE at INR41.3bn (+4% YoY; 3y CAGR 10%), in line with soft industry trends albeit stronger than the growth reported by private life insurers. The retail protection segment saw robust growth (+24% YoY), despite tighter underwriting; aided by traction from the new product launched during Q2. Despite higher share of retail protection and NPAR savings in the mix, Adj. VNB margins dipped 84bps YoY to 26.9% resulting in sequentially flat VNB at INR11.1bn. We opine that higher pass-through to policyholders in NPAR savings product is driving softer margins. Persistencies improved across cohorts in the range of 354-408bps, except for the 13th and 61st month. Within the channel mix, other channels (incl. banca ex-SBIN) posted robust growth at +36% YoY, although agency was softer on the back of restricted movement.

- VNBM and EV walk: Adj. VNB margins (FY22) improved 260bps YoY to 25.9%, on account of (1) mix change (+250bps, higher share of NPAR and protection); (2) change in operating assumptions (-80bps, tighter mortality assumptions); and (3) change in economic assumptions (+90bps, mainly risk-free rate). EV at INR396bn (+9% YoY) was negatively impacted by change in operating assumptions (INR -10.8bn) partly offset by operating experience (INR3.1bn, mainly due to better persistencies).

Shares of SBI Life Insurance Company Limited was last trading in BSE at Rs. 1107.90 as compared to the previous close of Rs. 1116.55. The total number of shares traded during the day was 87665 in over 4586 trades.

The stock hit an intraday high of Rs. 1132.10 and intraday low of 1066.60. The net turnover during the day was Rs. 96482810.00.

Source : Equity Bulls

Keywords

SBILifeInsuranceCompany INE123W01016 Q4FY22 ResultUpdate HDFCSecurities