Mr. Prayesh Jain, Lead Analyst – Institutional Equities, YES SECURITIES

SBI Life (Q2 FY21) – Mixed bag performance

– NBP at Rs. 59,397mn (27% YoY, 94% QoQ)
– APE at Rs. 27,100mn (-3.6% YoY, 113% QoQ)
– VNB at Rs. 5,400mn (-5.3% YoY, 108% QoQ)
– VNB Margin at 19.9% (-36bps YoY, -55 bps QoQ)
– PAT at Rs. 2,997mn (131% YoY, -23% QoQ)

NBP – NBP was at Rs59bn and registered a growth of 27%, which was better than our forecast of 18%. The growth was led by a sharp 71% jump in single premium while First year premium registered a de-growth of 9%.

APE – APE at Rs27bn was higher than our estimates of Rs26bn. APE de-grew by 3.6% yoy and grew by 113%qoq. The de-growth was led by 20% decline in par business, 25% fall Non-Par business and 13% fall in ULIP, however the de-growth was offset by 58% jump in individual protection business and 95% yoy surge in group business.

APE Mix – Share of Protection surged 274bps and that of group business increased by 766 bps. This was offset by decline of 182bps, 253bps and 641 bps in share of Par, Non-Par and ULIPs respectively.

VNB & VNB Margin – Q2 FY22 VNB at Rs5.4bn was 4% lower than our forecasts of Rs5.6bn, while VNB margin at 19.9% was below our estimates of 21.7%. On a yoy basis VNB margins contracted by 36bps.

Persistency improvement – Sequentially, persistency except for 61st Month improved across all time periods. On a yoy basis only 49th month persistency saw a decline.

Opex and commission ratios – Cost ratios have improved significantly with commission ratios falling 75bps yoy whereas opex ratio improved by 141bps yoy to 4.6%

EV – EV improved by Rs49bn (19%) to Rs312bn from March 2020.

Profits – PAT came at Rs3bn lower than our expectation of Rs3.8bn due to higher than expected benefits paid.

Channel Mix – Mix of other channel increased by 694bps on YoY basis. On QoQ basis, share of banca improved by 823bps.

Change in forecasts – H1 APE is 42% of our FY21 estimates and 43% VNB share of our forecasts.

Valuations – The stock currently trades at FY22E P/EV of 2.1x.

SBI Life Insurance Q2 FY21 Conference Call takeaways

Our view: We remain positive on SBI Life with consistent performance on the protection business and revival in the ULIP business. It continues to focus on extracting more from its bancassurance and agency channels. Limited presence on the online platforms, however, is a dampener. The stock trades at FY22E P/EV of 2.1x, which we find attractive. We maintain our estimates and recommend BUY with a 1-year price target of Rs1,006.

Product mix

Non-par:

– Towards beginning of year were selling existing guaranteed products but it has bearing on long term business, repriced the product with lower guarantees and therefore sales remained subdued during the quarter. Conscious view on guarantee products. Entering into FRA agreements soon with banks.

– Currently Non Par savings are more attractive among customers compared to Par products.

Protection:

– Growth in Term Protect mainly on back of volume growth.
– Credit protect has seen traction and reached last year level.
– In terms of new business, Credit protect Rs.3.3bn for H1FY20 and H1FY21, GTI at Rs4.9bn in H1FY21 v/s Rs.2bn in H1FY20.
– Share of Pure protection is 15% and 85% ROP, the mix has largely remained the same. Margins are largely good for both the products.
– Expect individual protection to continue the growth trajectory.
– Ticket size of Individual protection remains at Rs. 18,000 to Rs. 20,000

ULIP:

– ULIP sales have seen an uptick and confident that it shall have healthy share in business mix. Ticket size has increased compared to last year.

– In ULIP, customer preference is towards debt investment. (ULIP AUM mix – Debt 63%, equity in 27%)

– Group savings: Declared rates are higher than LIC and leading to growth of Group savings, in last few years the product has remained profitable. Rates for product with advance rates are already reduced and for the other product shall revise the rate on 31st March.

Distribution

– Yono covered 4lac lives (Small Proportion in terms of Premium collected as ticket size is smaller). Yono showed 58% growth in terms of Individual premium.

– Network of 154,158 agents as on Sept 2020
– To widen reach, tied up with Yes bank during Q2FY21
– Agency and Banca showing a positive trend on MoM basis. Trend is expected to continue, however growth may not remain this steep.

– Increasing Super Turbo after 4years in selected geographies where additional growth potential is seen, cities such as Mumbai and Delhi.

– Average productivity of agents has gone down due to new agents yet to contribute business on back of Covid. Therefore Q3 FY21 shall be really good.

– Indian Bank, Punjab & Sind bank and South Indian Bank are driving the increase in share of other channel. (Only share of SBI disclosed under Banca channel)

– Lot of efforts needed to be visible on web aggregators. Not very focused on that channel as don’t want to go beyond any regulatory norms.

– Developing a digital platform of own.

VNB and VNB Margin

– Operating assumption in VNB of Rs. 0.5bn, risk margin kept because of Covid and no assumption changed during the quarter.

– Lower impact of Term reinsurance rate hike as the sum assured is small in size.

– Increase in margin due to growth in Protection business has compensated for contraction in margin due to increase in ULIP business.

– Term price hike not taken. Yet to receive the regulatory approval for repriced product.

– No significant change in product margins in last few quarters.

– Individual +Group protection contributes to 26% of H1FY21 VNB.

Cost

– Business model ensures lower Opex and expect the same to continue. It will remain competitive.

– However, there could be slight increase in opex with economy opening up.

EV and Sensitivity

– Change in Interest rate sensitivity is due to change in product mix.

– Dynamic pricing strategic and focus on ALM to bring down the sensitivity of reference rate.

Others

– Significant improvement in Renewal with use of Data Analytics.

– Improvement in Solvency – Increase is due to Market improvement.

– The impact of ETR shall be dependent on the business mix. (Different tax impact on each product)

Shares of SBI Life Insurance Company Ltd was last trading in BSE at Rs.778.75 as compared to the previous close of Rs. 770.3. The total number of shares traded during the day was 54462 in over 3346 trades.

The stock hit an intraday high of Rs. 784.95 and intraday low of 765.3. The net turnover during the day was Rs. 42317281.





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