We find SBI Life well-placed to maintain a year-on-year flat VNB in FY21E despite severe headwinds to the savings business. A low-cost structure, an ability to tweak products mix and improved competitive positioning in the protection business are key positives. SBI’s focus on the insurance business during a challenging year and SBI Life’s technology push to improve digital agent and client engagements remain crucial. After the sharp price correction, we upgrade the stock to ‘buy’ from ‘add’ with FV of Rs 1,000.

We expect SBI Life to deliver 9% decline in APE in FY21E, reflecting lockdown-related slowdown, sluggish demand for ULIPs coupled with higher demand for the protection business.

SBI Life has toggled across business segments in the past, although less than peers. We factor in focus on traditional savings policies in FY21E over ULIPs. SBI Life’s management highlighted that VNB margin in the protection business is ~75%; the calculated margin in the savings business works out to ~13%.

Even as FY21E will remain a weak year for the savings business, the protection business will likely remain strong. Growth in individual protection remains extremely crucial as credit protect business (15% of protection APE) will likely fall by 20-30%, following decline in retail loan disbursements. We are building in about 35% growth in overall protection APE.

FY21E remains a challenging year, though we find SBI Life well-placed to sail through. Challenges stem from the ability to push insurance policies in a difficult year and manage expenses while increasing agency share to sell traditional savings policies.

The most crucial aspect is the ability to push and close business on digital infrastructure as physical client engagements likely reduce. SBI Life’s improved competitive positioning in the individual protection business is its key advantage, coupled with expected tailwinds on demand for protection following Covid-19. Sharp movement in capital markets poses further risk; We are revising our EV estimates to reflect lower volumes. After the revision, we expect the firm to deliver 17-18% medium-term operating RoEV. Upgrade to ‘buy’; FV of Rs 1,000 (from Rs 1,010). At our AV-based FV, the stock will trade at 2.75X book FY22E.