Strong Quarter – (i) above-industry savings growth; (ii) strong traction in retail protection; (iii) improving cost ratios and stable persistency. Increasing protection mix provides margin improvement levers. Exclusive distribution access with SBI and strong brand recall from its pseudo-sovereign identity give SBI Life a unique competitive advantage. Maintain ‘buy’, PT Rs 745, valuing at 2.4x FY21EV.
New business for Q4 grew 15% yoy, driven by ULIP (+21%) and protection (+176%). Par-savings business was down 19% yoy, as the focus of SBI shifted to cross-selling protection. APE growth was 15.2%, protection mix for FY19 improved to 6.8% (o/w 3.8% retail & 3.0% group credit life or term insurance) from 5.4% for FY18 (mostly group). We build ~17.6% APE growth for FY19-21.
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Having SBI as exclusive distributor for SBI Life gives it a unique advantage versus peers. A metric that indicates the latent opportunity of the channel: SBI Life’s bancassurance business done through SBI bank was 25bp of SBI’s deposit base, vs IPRU’s new business with ICICI Bank at ~80bp. New business written by bancassurance channel grew at 30.5% for Q4 (30% mix for FY19), the notable trend being a greater focus on selling unit-linked and protection products.
VNB margins for FY19 stood at 17.7%, 150bp improvement over FY18 due to: (i) higher protection mix; (ii) single premium paying structure for credit protect. This was partly offset by negative operating variance for the period. We build 20.3% margins for FY21, gradual improvement of 260 bps over FY19-21, driven by a 500 bps increase in protection mix to 11.8% in FY21.
SBI Life’s retail business franchise is geographically the most well diversified, leading to greater immunity from capital market downturns. The top three states contribute only 26%, vs 42% for IPRU and 54% for HDFC Life. Assuming Maharashtra’s portfolio to have the highest risk of capital market volatility, its 8% contribution to retail NBP of SBI Life is significantly lower than 20+% for IPRU and HDFC Life. We marginally tweak our EV estimate by (+)2% for FY20-21, factoring in stronger business growth and higher protection mix.
