Analyst corner: SBI Life’s traction in protection Biz to continue

SBI Life reported higher than expected Q4 PAT at `4.6 bn (up 20.1% y-o-y), primarily on account of higher income from investments (`41.5 bn – up 476.1% y-o-y).

Value of new business (VNB) grew strong 23.7% y-o-y aided by 150 bps y-o-y increase in VNB margin to 17.7% (up 20 bps q-o-q) on rising share of protection business. Share of high-margin protection NBP (individual and group) has been consistently increasing from 5.2% in Q3FY18 to 13.4% of NBP in Q4 (up 136 bps q-o-q).

Management expects traction in high margin protection business to continue, but on a moderate pace on account of relatively high base. Higher focus on protection business has led to some pressure on par savings business; however, with stable share of protection business, management will now also focus on par savings products.

(a) New business premium (NBP) growth was lower at 14.8 y-o-y, primarily on account of lower growth of 13.7% y-o-y in first year premium. Lower growth in first year premium also impacted APE growth (15.2% y-o-y);

(b) Individual rated premium growth too was relatively sluggish at 16.4% y-o-y, resulting in decline in quarterly private market share (18.6% vs. 26.4% in Q3FY19);

(d) AUM increased 21.3% y-o-y to `1,410.2 bn with equities constituting 23%, G-Secs 35%, debentures & bonds 33% and other securities the remaining share; and

(e) In channel mix, Banca and agency grew 29% y-o-y and 7% y-o-y in NBP and 18% y-o-y and 9% y-o-y in IRP.

SBI Life is a play on the under-penetrated Indian insurance market, superior distribution franchise, brand value and operating matrices at par with best in class. It has improved the product mix, consistently increased the Banca per branch productivity, cut down on cost ratios along with superior capitalization levels and healthy RoEV. We expect EV CAGR of 14.4% at `292.7 bn over FY19-21E driven by 13.6% CAGR in VNB at `22.2 bn in FY21E. At CMP, the stock trades at 2.4x/2.1x FY20E/FY21E Market cap/EV of `259 bn/ `293 bn.

State Bank of India