SBI Life Insurance Company Ltd. share price target

We maintain our BUY recommendation on the stock.

Overall, volume growth and margin performance remains better than peers for SBI Life (SBLI) on the back of minimal disruption in distribution from open architecture and broad-based customer segment with low concentration of high ticket size mix. This has enabled continuous near 20% RoEV for the last four years, which could lead to better valuation multiples.

H1 APE growth strong at 21% YoY led by a rebound in ULIP and protection business during Q2

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

We maintain our BUY recommendation on the stock.

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.

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.