New business powers strong Q3 show; maintain Buy

*SBI Life (SBIL) reported gross written premium (GWP) growth of 34.4% yoy and 19.3% qoq to Rs91.7bn, led by higher-than-expected new business premium (NBP) reflected in monthly data (already priced in) and consistent improvement in renewals at Rs52.7bn (+35% you).

* Value of new business (VNB) margin improved by 20bps qoq to 17.5% on a gross-tax basis (10bps below our estimate), driven by a remarkable improvement in the individual protect segment (Rs2.1bn in 9M19 vs. Rs0.4bn in 9M18) and continued traction in the single-premium credit protect a business. VNB margin stood at 19.6% on the effective tax rate. Protection contributed one-third of the overall VNB on superior margins.
* The persistency ratio improved across cohorts except the 61st month, helped by the declining share of the single-premium business. 13th month and 49th month persistency (important from a ULIP perspective) showed >1% yoy improvement in 9M19 despite the volatility observed in the capital markets. Persistency, excluding single premium, has actually improved in the 61st-month bucket by 350bps yoy to 46.5%.

* SBIL’s conscious strategy of improving product mix has started reflecting in its margin profile. Further, it has stopped writing new business under the loss-making PMJJBY, which should help it from any adverse variances. It has recently entered into a Bancassurance tie-up with Allahabad Bank and Syndicate Bank which should further strengthen its distribution network. We reaffirm our positive view on the stock and maintain our Buy rating with a TP of Rs830 at 3x Sep’20EV.

* Protection remains the key focus area

SBIL, in order to increase the contribution of the protection segment, is planning to integrate credit life offering along with its YONO platform in 1-2 months and believes that it will lead to cross-selling of the product. Apart from this, it is targeting to improve its attachment rates in a home loan (stable at 47% in 9M19 vis-à-vis 47% in 9M18 and 51% in FY18).

* Launch of a new Combo product

To increase the share of protection through agent channel (share of agency is at 1% in protection currently and is largely dependent on Bancassurance channel), SBIL has launched a new combo product offering protection and savings together in a unit-linked segment and will soon be launching it in the traditional savings segment.

* Maintain Buy

SBIL’s conscious strategy of improving product mix has started reflecting in its margin profile. Further, it has stopped writing new business under the loss-making PMJJBY, which should help it from any adverse variances. It has recently entered into a Bancassurance tie-up with Allahabad Bank and Syndicate Bank, which should further strengthen its distribution network. We reaffirm our positive view on the stock and maintain our Buy rating, with a TP of Rs830 at 3x Sep’20EV.

Courtesy by : Daily Hunt