SBI Life reported 0.5% yoy/0.2% qoq expansion in value of new business (VNB) margin to 18.9%

Chirag Batavia • 18 November 2020

SBI Life Insurance Company

 In 2QFY21, SBI Life reported 0.5% yoy/0.2% qoq expansion in value of new business (VNB) margin to 18.9% on the back of sharp growth in the protection business at 70% yoy; individual protection was up 58% yoy.

 Embedded value (EV) was up 21% yoy (Page 1, Para 2). ULIPs were down 13% yoy on expected lines, the company reported sequential growth in ULIP (up 38%) as investment appetite increased a bit.

 We expect SBI Life’s VNB margins to expand 0.3% yoy to 19% in FY21E and further increase to 21% by FY23E led by (1) increasing share of protection mix, (2) pick-up in growth of high-margin non-par savings post slowing down in 2Q & (3) margin expansion in protection and non-par businesses.

 We expect improving business momentum in the 2nd half. Strong persistency trends will cushion operating variance. Revival in APE (Average Premium Equivalent) growth from 2HFY21E (~15-16% over FY22-23E).

 SBI Life trades at ~2.25x & ~1.92x Price/EV in FY22E & FY23E, respectively. We value the business at 2.8x EV on September 2022E.

SBI Life Insurance Company: BUY
Dated: 17th November 2020
CMP: Rs.832
Fair Value: Rs.1100
Potential Upside: 32.2%
Market Cap: 83,194 Cr
Time Frame: 12 months

Note: The above is a brief note on the company, based on the inputs of KIE research report dated 27th October, 2020, which is available on their website at: https://www.kotaksecurities.com/ksweb/ResearchCall/Fundamental.       
Disclaimer: http://bit.ly/2n5AxIE


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