SBI Life Insurance Co. Ltd.'s June-quarter earnings prompted brokerages to retain their bullish stance on the insurer, with several raising target prices after value of new business, or VNB, and annual premium equivalent, or APE, exceeded expectations. Analysts said the earnings reflected stronger new business growth, particularly in group protection and non-par products, while management reiterated its growth and margin guidance for FY27.
Brokerages said higher sales volumes, favourable product mix in retail protection and non-par products, and continued traction across distribution channels supported earnings. However, most also highlighted that VNB margins narrowed because of a higher contribution from lower-margin group protection business, the impact of GST changes and revisions to operating assumptions. Analysts expect margins to recover over the rest of the financial year as business mix normalises.
The insurer reported higher premium income, profit and new business metrics for the quarter ended June. While profitability remained ahead of estimates, margins moderated from a year earlier due to changes in product mix. The company maintained its medium-term growth outlook and reiterated its FY27 guidance for individual APE growth and VNB margins.
SBI Life Q1 Highlights (Consolidated, YoY)
- Net profit rose 22.1% to Rs. 725 crore from Rs. 594 crore, above the Bloomberg estimate of Rs. 696 crore.
- Net premium income increased 17% YoY to Rs. 20,078 crore.
- New business premium rose 22.6% to Rs. 8,910 crore from Rs. 7,270 crore.
- Annual premium equivalent increased 35.5% to Rs. 5,380 crore from Rs. 3,970 crore.
- Value of new business increased 29.4% to Rs. 1,410 crore from Rs. 1,090 crore.
- VNB margin moderated to 26.2% from 27.4%, down 120 basis points YoY.
- Solvency ratio improved to 1.96 from 1.90 in the previous quarter.
- Thirteenth-month persistency improved to 87.7% from 87.1% a year earlier.
- Sixty-first-month persistency declined to 58.4% from 63.6%.
Growth in new business continued to be supported by higher sales through group protection, agency and non-par products. Management said the banca channel remains underpenetrated and reiterated its expectation that the channel can deliver more than 10% compound annual growth over the medium term. The insurer also expects the protection business to sustain growth of more than 20% over the medium term following investments made in the franchise.
Retail protection remained another key contributor during the quarter, with retail sum assured increasing 46% as the company sold a higher proportion of pure protection products. Management noted that group term business remained lumpy during the quarter, which influenced product mix and weighed on margins.
Despite margin pressure, SBI Life maintained its FY27 guidance of 14% growth in individual APE and VNB margins of 26-28%, signalling confidence that product mix would improve through the year as the contribution from group protection normalises.
Brokerages broadly agreed that SBI Life's June-quarter earnings reinforced confidence in its growth outlook despite temporary pressure on profitability. Most expect margins to improve over the coming quarters as the contribution from group protection moderates, while sustained growth in retail protection, non-par products and agency channels is likely to support VNB growth. The reaffirmation of FY27 guidance and higher earnings estimates prompted several analysts to raise target prices while retaining positive ratings on the stock.
Here's what brokerages are saying after SBI Life announced Q1 results
Goldman Sachs
- Maintained 'Buy'; Target Price At Rs. 2,235
- Banca channel growth was supported by non-par products despite slower ULIP and participating business.
- Management reiterated medium-term banca growth of more than 10% CAGR.
- Protection business expected to grow over 20% in the medium term.
- Retail sum assured increased 46% as pure protection contribution rose.
- Group term business remained lumpy during the quarter.
- FY27 individual APE growth guidance of 14% and VNB margin guidance of 27-28% maintained.
- Raised FY27-FY29 VNB estimates by up to 4% on better top-line growth.
- Valuation remains attractive at around 1.7 times FY28 estimated price-to-embedded value.
JPMorgan
- Maintained 'Overweight'; Target Price At Rs. 2,510
- VNB exceeded estimates by 16% on stronger new business volumes.
- VNB margin declined to 26.2% because of higher group protection mix, GST impact and operating assumption changes.
- Favourable economic assumptions partly offset margin pressure.
- Headline APE increased 36% as group protection business surged more than three-fold.
- Individual APE increased 14%.
- Shares continue to trade at attractive valuation multiples.
Kotak Institutional Equities
- Maintained 'Buy'; Target Price At Rs. 2,550
- VNB exceeded estimates by 18% and increased 30% YoY.
- APE growth of 36% was well ahead of estimates, supported by higher group term business.
- Non-par business increased 24% YoY.
- Pure individual protection business increased 41%.
- SBI banca channel grew 10%, while other banks and agency channels outperformed.
- Raised VNB estimates by 2-5% following stronger product mix.
Citi
- Maintained 'Buy'; Target Price Raised To Rs. 2,750 From Rs. 2,625
- Excluding group protection, VNB margin improved to around 29-30%.
- Retail protection, non-par products, annuities and higher rider attachment supported profitability.
- GST reduced margins by around 140 basis points.
- Individual APE through non-SBI channels increased 21%.
- SBI channel volumes remained consistent with management guidance.
- Retained embedded value estimates while rolling forward valuation.
Morgan Stanley
- Maintained 'Overweight'; Target Price At Rs. 2,340
- VNB exceeded estimates by 17-19%.
- Group protection business increased more than three-fold, supporting VNB growth.
- Margin impact from product mix was partly offset by stronger individual business.
- FY27 guidance for APE growth and VNB margins remains unchanged.
- Raised FY27 VNB estimate by 2% following higher expected margins.
- Regulatory concerns around mandatory open architecture have eased.
Bernstein
- Maintained 'Outperform'; Target Price At Rs. 2,440
- New sales increased 36% YoY, led by group business.
- Higher contribution from group business reduced overall margins.
- Agency channel outperformed banca channel.
- GST impact and higher group business lowered VNB margins.
- Expects margins to recover as product mix normalises.
- FY27 guidance remains unchanged.
Jefferies
- Maintained 'Buy'; Target Price Raised To Rs. 2,600
- VNB exceeded Jefferies estimates by 19% and consensus by 13%.
- APE increased 36%, led by a four-fold rise in group protection business.
- Agency APE increased 24%.
- VNB margin declined because of GST-related input tax credit changes, group protection mix and operating assumptions.
- Raised FY27-FY29 VNB estimates by 1-3%.
- Banca APE growth outpaced key listed peers.
- Persistency improved across most cohorts except the 61st month.
- Continues to prefer SBI Life within the life insurance sector.
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