SBI Life reported a robust growth of ~52% in new business premium (NBP); however, PAT at Rs 370 crore (up 5% y-o-y) was low on change in valuation of policy liabilities (up 56.1% y-o-y). Value of new business (VNB) grew a strong 50% y-o-y to Rs 330 crore aided by a 90 bps y-o-y increase in VNB margin to 17.9% (up 20 bps q-o-q) on rising share of the protection business (13.9% share in NBP vs 13.4% in Q4FY19).

The management is confident of retaining high growth while curtailing costs and improving margin. Adding fresh banca partners, digitisation and protection business will help achieve ~20% RoE. We increase the APE growth estimate from 14-15% to 22-20% in FY20-21 to factor expanding distribution footprint & improving persistency. Revise TP to Rs 850 (vs Rs 725) but downgrade to ‘add’ on price appreciation.

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The NBP growth was strong at 52% y-o-y aided by a significant traction in share of protection business from 10% to ~14% (most profitable product). Persistency ratio improved in 13th and 25th month buckets (84.5% and 76%, respectively) whereas it was down marginally in the 61st month bucket at 56.3%. AUM increased 22% y-o-y to Rs 1,46,950 crore with debt:equity mix at 77:23. Diversification was witnessed in origination channels with the share of banca decreasing by 4% y-o-y to 57% and agency down by 5% y-o-y to 18% in NBP. The VoNB margin was 17.9% (up 90 bps y-o-y), solvency ratio was at 2.17x and RoE was down 2% y-o-y to 19.2%.

SBI Life’s stock price has moved up by ~30% in last 3 months highlighting the comfort on the industry and company in specific. The brand, distribution franchise and operating matrices are at par with best in class with no legacy issues. It has been successful in improving the product mix, diversifying the distribution network while reducing commissions/ cost ratios. We revise our TP to Rs 850 factoring in a higher APE growth (revise growth estimate from 14-15% to 22-20% in FY20-21) and improving margin profile.