Bernstein sees 32% upside in this insurance stock despite 110 bps margin compression 

The brokerage said the quarter reinforced the strength of SBI Life’s core franchise, with healthy individual business growth, improving distribution mix and management reiterating its guidance for margin recovery as the business mix normalises.

SBI Life: Group business powers growth

Bernstein said SBI Life delivered a strong sales performance in the first quarter, driven by exceptional growth in group business while the retail franchise continued to expand at a healthy pace.

Annualised Premium Equivalent (APE), the key measure of new business sales in the life insurance industry, rose 36% year-on-year to Rs 5,380 crore. Gross premium income increased 20% to Rs 21,290 crore, while new business premium climbed 23% to Rs 8,910 crore.

The standout performer was group business, where APE surged 184% year-on-year to Rs 1,420 crore, compared with Rs 500 crore a year earlier. Individual APE also remained healthy, rising 14% to Rs 3,960 crore from Rs 3,470 crore.

Summing up the quarter, Bernstein said, “New sales growth was strong for Q1 (+36% YoY), driven by group business sales (+2.8x YoY). Individual new business was healthy at +14% YoY, with growth across products, except ULIPs.”

The brokerage added that growth was broad-based, supported by higher sales of participating products, non-participating savings products and retail protection policies.

SBI Life: Margins decline, but Bernstein sees a temporary setback

Despite the strong sales momentum, profitability came under pressure.

Value of New Business (VNB) rose 29% year-on-year to Rs 1,410 crore, but the VNB margin declined to 26.2%, compared with 27.4% a year ago and 28.3% in the March quarter.

Bernstein attributed the decline primarily to the changing business mix.

Group business carries materially lower margins than individual business, and its significantly higher contribution during the quarter diluted overall profitability. In addition, GST-related changes reduced margins by around 110 basis points, according to the brokerage.

“The higher share of group business, along with the GST impact, resulted in margins declining to 26.2%,” Bernstein added.

However, Bernstein believes these pressures are unlikely to persist.

The brokerage said management expects margins to improve steadily over the coming quarters as the contribution from lower-margin group business reduces and the GST impact becomes part of the base.

“Management expects margins to bounce back after Q1 towards the upper band of guidance (~26-28%) as individual new sales grow in the mix,” as quote in the brokerage report.

Retail franchise remains healthy

Bernstein said the underlying retail business continues to show encouraging trends despite the temporary margin pressure.

Among individual products, non-participating savings remained the strongest growth driver, with sales rising 26% year-on-year. Participating products grew 33%, while retail protection business increased 19%. The only weak segment was ULIPs, which continued to lag.

The brokerage believes this product mix is favourable over the medium term because protection and non-par products generally support stronger profitability than traditional savings products.

Distribution becomes more diversified

Bernstein also highlighted encouraging progress in SBI Life’s distribution strategy.

While bancassurance remains the company’s largest channel, agency sales continued to grow faster.

Agency business increased 24% year-on-year compared with 10% growth in banca, while business generated through other channels jumped 160%.

According to Bernstein, this suggests SBI Life is gradually reducing its dependence on State Bank of India’s branch network by strengthening agency, broker and aggregator channels.

The brokerage said a more diversified distribution network should support sustainable growth over the long term.

Management sticks to FY27 guidance

Importantly, management left its FY27 outlook unchanged despite the softer margin performance.

Bernstein noted that the company continues to expect around 14% top-line growth this financial year while maintaining VNB margin guidance of 26%-28% for FY27 and the medium term.

The brokerage said management expects profitability to improve as the contribution from individual business increases, credit life continues to expand and the one-time GST impact fades.

“Management indicated that margins should improve as mix of group business reduces, credit life continues growing and GST impact gets built into the base,” Bernstein noted.

Bernstein said the unchanged guidance reinforces management’s confidence that the June quarter’s margin pressure is temporary rather than structural.

SBI Life: Key Q1FY27 metrics

Conclusion

Bernstein believes SBI Life’s June-quarter results tell two different stories. The first is a business that continues to deliver healthy growth across its core retail franchise and is successfully broadening its distribution network. The second is a temporary margin setback caused by an unusually high share of lower-margin group business and the impact of GST changes.

The brokerage expects both headwinds to ease over the course of FY27 as the product mix shifts back towards individual policies. With management reiterating its growth and margin guidance, Bernstein believes the company’s long-term earnings trajectory remains intact, supporting its ‘Outperform’ rating and Rs 2,440 target price.

Disclaimer: This article reports on third-party brokerage coverage and analyst stock ratings for informational and educational purposes only. The views, projections, and price targets expressed are those of Bernstein and do not constitute personal financial advice, an offer, or a solicitation to buy or sell any security. Equity investments are subject to market risks, and past performance or price targets are not guarantees of future returns. Readers are advised to perform their own due diligence and consult a SEBI-registered financial advisor before making any investment decisions.

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