SBI Life Insurance Company Ltd. share price target

SBI Life’s VNB decline of 1% YoY in Q1FY24 was driven by lower APE growth (4% YoY) and 153bps decline in VNB margin (Q1FY24 margin stood at 27.8%). The muted show is attributable to a combination of base effect and relative change in product mix, as per the management.

We maintain our BUY recommendation on the stock.

Q1 APE growth softened to 4% YoY as non-par business slowed; management optimistic of a rebound

While we are constructive on the long-term growth prospects of the LI sector, we believe major tectonic shifts will create near-term challenges, albeit preparing the industry for a cleaner insurance penetration. Contrary to expectations of relief in the Union Budget, life insurers are expected to be adversely impacted by the first-order and second-order changes proposed in the Finance Act'23. Conversation with industry experts suggest that the top four private life insurers are likely to witness 20-27% adverse impact on FY24E APE predominantly on account of the impending transition to the new tax regime. We flag high ceding charges in guaranteed NPAR savings as the next potential target as policymakers look to protect policyholder interest and improve life insurance (LI) penetration. While the demand for retail term protection remains subdued and the Apr-23 growth print was soft, we await evidence of medium-term growth momentum.

Strong performance in FY23 with gross premium up 15% YoY and APE growth of 18%

SBI Life (SBLI) reported strong APE/VNB growth of 18%/37% in FY23. Company maintains its strong outlook of >20% growth in APE in FY24. SBLI is relatively unaffected by the new tax regulations due to its low share of >Rs500k ticket-size policies (less than 2% of total APE in 9MFY23) and has been better than peers in terms of growth in the number of policies (14% YoY growth in FY23 and 12% CAGR between FY20-23).