However, by Q2FY22 expect growth to be back in black. ULIPs have sustained strong demand on the back of capital market outperformance.
Business momentum remains strong in July and August: Improved sales momentum witnessed in June has continued in July and August. All product segments have contributed to this growth. Non-par savings logged growth of 50% YoY in July. Q1FY22 performance of this segment was muted due to strong traction in ULIPs. However, by Q2FY22 expect growth to be back in black. ULIPs have sustained strong demand on the back of capital market outperformance.
Protection growth to be led by retail and credit protect: Despite the pandemic, SBI Life has remained constructive on retail protection. Going forward, the company expects credit protect to start firing as retail loan book of SBI picks up pace. Higher-than-industry pricing ensured ease in dealing with reinsurance price hike. Group term is a highly competitive business; therefore it remains selective in this segment.
Distribution might to be further boosted by focus on agency channel: Agency remains an important element of distribution strategy with a contribution of ~30% in APE. High emphasis is placed on nurturing and training individual agents so that they can understand various products, customer needs and improve productivity. SBI life is therefore continuously investing in them to reap long-term benefits. Despite the lockdown in Q1, sales of agency grew 38% YoY to Rs 4.7billion.
Key risks: Protracted weakness in capital markets affecting ULIP persistency: Limited renewals obviously hurt a largely fixed cost-quasi asset management business through a rundown in asset size and consequent cost-driven profitability pressures. Regulatory changes can have a profound impact. Operational challenges such as managing activations across the massive branch network and management continuity given its PSU parentage
Outlook and valuation: Quality at attractive valuation; retain ‘buy’. Best-in-class cost ratio, improving persistency and strong premium growth ensure continuity in sound operating performance. While margin has expanded YTD, it still lags peers and therefore has highest room for improvement over FY21–23E. The stock is trading at 2.5x FY22E P/EV; in our view, it deserves a re-rating upwards. Maintain ‘BUY/SO’.