SBI Life Insurance Company

(SBILIFE IN )
Rating: HOLD | CMP: Rs888 | TP: Rs880

July 22, 2020 Margins suffer on growth pangs

Q1FY21 Result Update Quick Pointers:

 Margins were steady at 18.7% in Q1Fy21 v/s FY20 but declined sequentially
as protection (from banca) was much slower

Key Financials
 Individual persistency suffered on 13Month, while improved in other buckets
Y/e March FY20 FY21E FY22E FY23E
Net Premiums
(Rs m)
3,89,141 4,25,714 4,81,275 5,51,874 SBI Life’s overall APE declined by 35% YoY as FYP de-grew by 34% YoY and
- Growth (%) 18.3 9.4 13.1 14.7 despite 30% growth in single premium. Renewal premiums were also better
Total Income
5,34,270 6,02,579 6,95,203 7,48,754 growing 30% YoY, although 13M persistency (regular pay) saw weakness
(Rs mn)
Surplus / Deficit by110bps at 82.6% over FY20, while other buckets saw improved trends.
11,147 11,709 13,548 19,865
(Rs m)
PAT (Rs m) 16,101 18,205 21,514 14,824 Overall APE was slower on slower protection growth both on individual &
- Growth (%) 21.3 13.1 18.2 (31.1) group (lower loan attachments), while growth has been led in group savings
EPS (Rs) 16.1 18.2 21.5 14.8
Emb. Value
showing lower reflection in APE growth. Margins at 18.7% were slightly lower
262.8 311.4 364.7 422.8
(Rs bn) than expectation dragged by not passing re-insurance rate hikes which it will
NBP Margin (%)
18.7 19.1 19.8 19.8 do in mid-year from new product re-filing, while growth also has impacted
post overrun
RoE (%) 19.2 15.5 17.1 11.0
margins. Banca channel has seen traction, while agency has to yet pick up,
Operating RoEV
20.5 16.2 16.0 15.8
(%) while protection has held up its growth restricting margins. We retain HOLD
RoEV (%) 17.3 18.5 17.1 15.9
and maintain our TP of Rs 880 based on 2.4x Mar-22 P/EV.
Dividend yield (%) - 0.2 0.2 0.2
Price/EV (x) 3.4 2.9 2.4 2.1
Ap. Value/EV (x) 2.6 2.5 2.4 2.3  Mixed growth performance: Overall APE de-grew by 31% YoY despite NB
de-grew only by 3% YoY mainly led from group savings and non-par
(annuities). Growth has been better in Jun’20 v/s April/May’20 and with banca
growth coming back. Protection growth has been much slower on both
Key Data SBIL.BO | SBILIFE IN
52-W High / Low Rs.1,030 / Rs.520 individual & group mainly credit life. ULIP growth remained volatile and across
Sensex / Nifty 37,930 / 11,162 channels which bough mix down to 48% on APE basis and 25% on NB basis.
Market Cap Rs.888.39bn/ $ 11,856.6m
Shares Outstanding 1,000.0m Share in individual NB was led by non-par savings mainly annuities.
3M Avg. Daily Value Rs.1,309.3m
 Persistency declines on 13M; costs under control: Persistency declined on
13M basis mainly in regular pay by 110bps to 82.6% and we need to keep
watch on same but continued to improve and hold up in other buckets.
Shareholding Pattern (%) Company has kept strong control on cost with commission payouts and other
Promoter’s 62.80 discretionary spends, helping in maintaining margins. Cost levers are limited
Foreign 25.87
Domestic Institution 5.74 as growth in protection/ULIP is likely to pick up ahead.
Public & Others 5.59
Promoter Pledge (Rs bn) -  VNB margins slightly weaker: VNB de-grew by 30% YoY as NB volume took
a beating, while margins were slightly weaker as protection business growth
was much slower. Impact from lower RFR also impacted VNB, while no pass
on yet on re-insurance rate hikes was a deterrent on negative bias on margins.
Stock Performance (%)
Focus remains on high margins products of protection & NPar savings, while
1M 6M 12M
Absolute 10.1 (12.2) 14.8
some margin benefit could accrue as company make strategy on position new
Relative 2.6 (2.8) 18.2 term product for re-insurance rate hike ahead.

Pritesh Bumb  Valuations at discount to HDFCLI and sharp growth pickup will drive
priteshbumb@plindia.com | 91-22-66322232
multiples: SBILI continues to trade at 40% discount to HDFCLI, but we believe
Riddhi Mehta
lot of catch up is required on protection growth and margins thereon. Lockdown
riddhimehta@plindia.com | 91-22-66322258
has impacted business growth and hence remains imperative to drive further
valuation multiples. We retain our Hold stance on the stock.

July 22, 2020 1

 SBI Life Insurance Company

Sales show tepid growth thus PAT also grows slow

YoY gr. QoQ gr.
(Rs m) Q1FY21 Q1FY20 Q4FY20
(%) (%)
Policyholders’ Account
Gross Premium Income 76,434 66,944 14.2 1,19,372 (36.0)
Net Premium Income 75,881 66,550 14.0 1,18,630 (36.0)
Income from Investment (Net) 85,828 29,773 188.3 (66,772) N/A
Total (A) 1,61,781 96,435 67.8 56,749 185.1
Net Commission 2,254 2,494 (9.6) 4,534 (50.3)
Opex related to Insurance 5,461 4,980 9.6 7,265 (24.8)
Benefits Paid (Net) 28,528 28,605 (0.3) 39,601 (28.0)
Change in actuarial liability 1,16,921 54,497 114.5 (4,053) N/A
Total (B) 1,55,683 93,655 66.2 50,154 210.4
Surplus / (Deficit) 6,098 2,780 119.3 6,596 (7.5)

Shareholders’ Account
Trf from Policyholders A/c 2,822 2,155 31.0 9,209 (69.4)
Investment Income 949 1,713 (44.6) (115) N/A
Total 3,787 3,884 (2.5) 9,115 (58.5)
Non Insurance Expenses 95 86 11.3 209 (54.4)
Trf to Policyholders A/c - - N/A! 4,763 (100.0)
Profit/(Loss) before Tax 3,877 3,779 2.6 5,216 (25.7)
Provision for Taxation (32) 59 (154.0) (91) N/A
Profit/(Loss) after Tax 3,909 3,719 5.1 5,307 (26.3)

Ratios
Expense Ratio 7.1 7.4 (29) 6.1 106
Commission Ratio 2.9 3.7 (78) 3.8 (85)
Cost / TWRP 10.1 11.2 (107) 9.9 21
Source: Company, PL

Margins rise though sequentially come off as APE de-grows

Rs Mn Q1FY21 Q1FY20 YoY gr. (%) Q4FY20 QoQ gr. (%) FY20 FY19 YoY gr. (%)
New Business APE 12,700 18,600 (31.7) 26,900 (52.8) 1,07,400 97,000 10.7
Individual 10,500 16,200 (35.2) 24,900 (57.8) 97,700 89,500 9.2
Group 2,200 2,400 (8.3) 2,000 10.0 9,700 7,500 29.3

Total New Business 30,586 31,545 (3.0) 38,054 (19.6) 1,65,925 1,37,920 20.3
Savings 27,686 27,145 2.0 31,754 (12.8) 1,45,125 1,21,520 19.4
Protection 2,900 4,400 (34.1) 6,300 (54.0) 20,800 16,400 26.8

%
Savings 90.5 86.1 447 83.4 707 87.5 88.1 (64.5)
Protection 9.5 13.9 (447) 16.6 (707) 12.5 11.9 64.5

VNB 2,400 3,300 (27.3) 5,400 (55.6) 20,100 17,200 16.9

VNB Margin (%) 18.7 17.9 80.0 20.1 (137.4) 18.7 17.7 100.0
Source: Company, PL

July 22, 2020 2

 SBI Life Insurance Company

Renewal business maintains momentum with some support from Group NB

Rs Mn Q1FY21 Q1FY20 YoY gr. (%) Q4FY20 QoQ gr. (%) FY20 FY19 YoY gr. (%)
Retail New Business 13,400 18,700 (28.3) 28,500 (53.0) 1,12,400 96,400 16.6
Group New Business 17,186 12,845 33.8 9,554 79.9 53,500 41,520 28.9
Renewal Premium 45,849 35,400 29.5 81,319 (43.6) 2,40,422 1,91,974 25.2
Gross Written Premium 76,434 66,944 14.2 1,19,372 (36.0) 4,06,347 3,29,894 23.2
Source: Company, PL

Non-par growth supported by Group segment, PAR and Protection decline

Total NB Product Mix Q1FY21 Q1FY20 YoY gr. (%) Q4FY20 QoQ gr. (%) FY20 FY19 YoY gr. (%)
Rs Mn
Individual Savings 12,600 17,600 (28.4) 26,800 (53.0) 1,07,200 92,700 15.6
PAR 1,300 2,700 (51.9) 2,600 (50.0) 11,600 17,600 (34.1)
Non PAR 3,500 1,700 105.9 3,700 (5.4) 15,100 2,200 586.4
ULIP 7,800 13,200 (40.9) 20,500 (62.0) 80,500 72,800 10.6
Group Savings 15,000 9,600 56.3 4,800 212.5 37,900 28,800 31.6
Protection 2,900 4,400 (34.1) 6,300 (54.0) 20,800 16,400 26.8

(%)
Individual Savings 41.3 55.9 (1,456) 70.7 (2,940) 64.6 67.3 (265)
PAR 4.3 8.6 (431) 6.9 (260) 7.0 12.8 (578)
Non PAR 11.5 5.4 608 9.8 171 9.1 1.6 751
ULIP 25.6 41.9 (1,633) 54.1 (2,852) 48.5 52.8 (431)
Group Savings 49.2 30.5 1,870 12.7 3,652 22.8 20.9 195
Protection 9.5 14.0 (446) 16.6 (711) 12.5 11.9 64
Source: Company, PL

Total NB Product Mix- NPar spikes at cost of ULIP Total NB Product Mix- Group Savings dominate

ULIP PAR Non PAR Individual Savings Group Savings Protection

5% 5% 10% 10% 11% 13% 14% 12% 11% 13% 10%
22% 26% 15% 18%
38% 37% 34% 35% 27% 25% 21% 20%
50% 50% 46% 44% 30% 29%
26% 23%
20% 70% 49%
19%
13% 12%
15% 14% 7% 7%
9% 7%
80% 76%
58% 56% 4% 63% 65% 67% 67% 56% 59% 63% 65%
46% 49% 52% 54% 42% 43% 47% 49% 41%
26%

9M18 FY18 1Q19 1H19 9M19 FY19 1Q20 1H20 9M20 FY20 1Q21 9M18 FY18 1Q19 1H19 9M19 FY19 1Q20 1H20 9M20 FY20 1Q21

Source: Company, PL Source: Company, PL

July 22, 2020 3

 SBI Life Insurance Company

others (digital channel) ramps up as Banca weakens

Rs Mn Q1FY21 Q1FY20 YoY gr. (%) Q4FY20 QoQ gr. (%) FY20 FY19 YoY gr. (%)
Total NB Sourcing Mix Breakup
Banca 12,540 17,981 (30.3) 22,800 (45.0) 99,540 88,269 12.8
Agency 4,282 5,678 (24.6) 8,879 (51.8) 33,180 28,963 14.6
Others 13,764 7,886 74.5 6,321 117.7 33,180 20,688 60.4

Indv APE Sourcing Mix Breakup

Banca 6,510 11,016 (40.9) 16,864 (61.4) 66,436 62,650 6.0
Agency 3,465 4,860 (28.7) 7,440 (53.4) 29,310 26,850 9.2
Others 525 486 8.0 496 5.8 1,954 - N/A
Source: Company, PL

Others dominates and Banca loses share On Ind. basis, banca dominates but others (direct
and broker) continues to gain
Banca Agency Others
Banca Agency Others
9% 12% 15%
18% 14% 17% 25% 25% 21% 20%
1% 1% 1% 1% 1%
3% 2% 3% 2% 5%
25% 25% 45%
23% 21% 21% 21% 32%
18% 18% 19% 20% 29% 31% 33% 30% 29% 30% 29% 28% 30% 33%

14%
66% 62% 61% 61% 65% 62%
57% 57% 60% 60%
41% 70% 68% 66% 69% 70% 70% 68% 69% 69% 68% 62%

9M18 FY18 1Q19 1H19 9M19 FY19 1Q20 1H20 9M20 FY20 1Q21 -2%
9M18FY181Q19 1H199M19FY191Q20 1H209M20FY201Q21
Source: Company, PL
Source: Company, PL

Lower business volumes help costs

Commission as % of GWP Opex as % of GWP

Total Expenses as % of GWP

13.8%
12.0%
11.0% 11.0% 11.2%
10.4% 10.0% 9.9% 10.1%
9.3% 9.7% 9.6%
7.8% 7.4%
6.9% 7.1%
6.5% 6.5% 6.1% 6.1%
5.2% 5.6%
4.6% 4.0% 4.1% 4.1% 4.0%
4.1% 3.9% 3.9%
3.7% 3.9% 2.9%

9M18 FY18 1Q19 1H19 9M19 FY19 1Q20 1H20 9M20 FY20 1Q21

Source: Company, PL

July 22, 2020 4

 SBI Life Insurance Company

Short Term Persistencies decline though 61m improves

13th Month 25th Month 37th Month 49th Month 61st Month

86.1%
85.8%

85.7%
84.5%
84.5%
83.7%

83.3%
83.2%
82.3%

81.6%
78.4%

71.6%
71.2%

71.0%
71.0%

71.1%
70.6%
70.5%
69.5%

69.2%

68.9%
68.0%

63.1%
59.9%
58.5%

58.5%
57.9%
57.5%

57.5%
57.0%

56.3%
54.9%
54.0%
9M18 FY18 1Q19 1H19 9M19 FY19 1Q20 1H20 9M20 FY20 1Q21

Source: Company, PL

Solvency Ratio spikes up as markets improve

Drop in solvency on back of fall in
Solvency Ratio (%)
capital markets which has been
similar to peers

239%
221% 223% 213% 217% 220% 230%
206% 206% 214%
195%

9M18 FY18 1Q19 1H19 9M19 FY19 1Q20 1H20 9M20 FY20 1Q21

Source: Company, PL

Change in Estimates – We lower our growth

Old Revised % Change
(Rs bn)
FY21E FY22E FY21E FY22E FY21E FY22E
APE 114.2 132.3 107.9 125.0 (5.6) (5.6)
VNB 21.9 26.2 20.6 24.7 (5.6) (5.6)
VNB Margin (%) 19.1 19.8 19.1 19.8 - -
EV 305.1 363.5 311.4 364.7 2.1 0.4
Price target (Rs) 880 880 -
Recommendation HOLD HOLD
Source: PL

July 22, 2020 5

 SBI Life Insurance Company

We maintain our TP at Rs 880 based on 2.4x P/EV Mar-22E

PT calculation and upside
Op RoEV 16.0%
CoE 14.1%
Terminal Growth 5.0%
Embedded value 365
Price / Embedded value 2.4
Appraisal Value 880
Number of shares, mn 1,000
Valuation per share 880
CMP 888
Upside (%) -0.9%
Source: Company, PL

Key Metrics and EV movement

Rs bn FY17 FY18 FY19 FY20E FY21E FY22E
APE 67.3 85.4 97.0 107.4 107.9 125.0
YoY growth (%) 36.2 26.9 13.6 10.7 0.4 15.9
NBV 10.4 13.9 17.2 20.1 20.6 24.7
YoY growth (%) 48.3 33.6 24.1 16.9 2.7 19.9
EV Movement
Opening IEV 125.5 165.4 190.7 224.0 262.8 311.4
New Business Value 10.4 13.9 17.2 20.1 20.6 24.7
EVOP 28.9 29.6 33.2 45.9 42.6 49.9
Dividend payout 1.8 2.4 2.4 - 2.1 2.1
Closing EV 165.4 190.7 224.0 262.8 311.4 364.7
Adjusted Net worth 70.0 74.7 85.7 102.0 118.3 138.0
Value in force (VIF) 95.4 116.0 138.4 160.8 193.1 226.7
Ratios (%)
NBAP margins 15.4 16.2 17.7 18.7 19.1 19.8
RoEV 31.8 15.3 17.5 17.3 18.5 17.1
Operating RoEV 23.0 17.9 17.4 20.5 16.2 16.0
Source: Company, PL

July 22, 2020 6

 SBI Life Insurance Company

Technical account (Rs m) Balance sheet (Rs m)

Y/e Mar FY20 FY21E FY22E FY23E Y/e Mar FY20 FY21E FY22E FY23E

Gross Premiums 4,28,653 4,84,675 5,52,046 4,28,653 Sources of Fund 10,000 10,000 10,000 10,000
Reinsurance Ceded (2,939) (3,401) (172) (2,939) Share Capital 80,703 96,807 1,16,221 1,28,945
Net Premiums 4,25,714 4,81,275 5,51,874 4,25,714 Reserves And Surplus 92,074 1,08,426 1,28,131 1,40,854
Income from Investments 1,74,782 2,11,571 1,94,439 1,74,782 Shareholders' Fund 7,86,748 9,60,018 11,59,818 14,28,177
Other Income 2,083 2,357 2,440 2,083 Policy Liabilities 8,08,244 9,98,303 12,21,687 14,84,580
Total income 6,02,579 6,95,203 7,48,754 6,02,579 Prov. for Linked Liab. - - - -
Commission 15,097 16,900 17,328 15,097 Funds For Future App. 44,085 52,020 61,384 61,384
Operating expenses 25,615 28,898 25,127 25,615 Current liabilities & prov. 18,44,352 22,52,345 27,28,641 32,72,617
Prov for doubtful debts - - - - Total
Operating Profit 5,61,867 6,49,405 7,06,298 5,61,867 Application of Funds 89,305 1,07,399 1,29,422 1,24,451
Prov for Tax 3,536 4,043 3,448 3,536 Shareholders’ inv 8,04,476 9,89,544 12,02,997 14,90,386
Benefits Paid (Net) 1,81,763 2,06,809 1,49,573 1,81,763 Policyholders’ inv 8,63,143 10,52,237 12,74,488 15,36,046
Chg in reserves 3,63,329 4,23,183 5,31,252 3,63,329 Assets to cover linked liab. 2,036 2,402 2,834 2,834
Surplus / Deficit 11,709 13,548 19,865 11,709 Loans 7,024 8,288 9,780 9,780
Shareholder's a/c (Rs m) Fixed Assets 78,369 92,475 1,09,120 1,09,120
Y/e Mar FY20 FY21E FY22E FY23E Current assets 18,44,352 22,52,345 27,28,641 32,72,617

Transfer from technical a/c 11,147 11,709 13,548 6,046 Total 10,000 10,000 10,000 10,000
Income From Investments 6,594 8,360 10,065 10,790 Operating ratios
Total Income 17,893 20,239 23,782 17,006 Y/e Mar FY20 FY21E FY22E FY23E
Other expenses 345 397 397 397
Investment yield (%) 8.5 8.5 8.5 6.4
Contribution to technical a/c 1,119 1,266 1,433 1,483
Commissions / GWP 3.6 3.5 3.5 3.1
Total Expenses 1,464 1,662 1,829 1,880
- first year premiums 7.0 5.5 5.3 3.9
PBT 16,430 18,576 21,953 15,126
- renewal premiums 2.8 3.5 3.5 3.5
Prov for Tax 329 372 439 303
- single premiums 0.7 0.7 0.7 0.7
PAT 16,101 18,205 21,514 14,824
Operating expenses / GWP 6.2 6.0 6.0 4.6
Premium (Rs m) & growth (%) Total expense ratio 9.8 9.5 9.4 7.7
Y/e Mar FY20 FY21E FY22E FY23E Claims / NWP 43.5 42.7 43.0 27.1
New business prem - unwtd 1,65,900 1,69,218 1,96,293 2,27,700 Solvency margin 214.0 215.0 215.0 215.0
New business prem - APE 1,05,021 1,07,860 1,24,975 1,44,971
Persistency ratios (%)
Renewal premium 2,26,037 2,59,435 2,88,383 3,24,346
Y/e Mar FY20 FY21E FY22E FY23E
Total premium - unwtd 3,91,937 4,28,653 4,84,675 5,52,046
13th Month 81.3 81.3 81.3 81.3
New bus. growth - unwtd 20.3 2.0 16.0 16.0
25th Month 74.3 74.3 74.3 74.3
New business growth - APE 10.2 2.7 15.9 16.0
37th Month 68.0 68.0 68.0 68.0
Renewal premium growth 17.7 14.8 11.2 12.5
49th Month 62.0 62.0 62.0 62.0
Total prem growth - unwtd 18.8 9.4 13.1 13.9
61st Month 64.2 64.2 64.2 64.2
Premium mix (%)
Profitability ratios (%)
Y/e Mar FY20 FY21E FY22E FY23E
Y/e Mar FY20 FY21E FY22E FY23E
New business - unwtd
NBP margin (%) post overrun 18.7 19.1 19.8 19.8
- Individual mix 67.8 67.0 69.0 69.0
RoE (%) 19.2 15.5 17.1 11.0
- Group mix 32.2 33.0 31.0 31.0
RoIC (%) 161.0 182.0 286.9 296.5
New business mix - APE
Valuation ratios
- Participating 11.0 15.5 14.0 14.0
Y/e Mar FY20 FY21E FY22E FY23E
- Non-participating 20.2 19.5 20.4 20.4
- ULIPs 68.8 65.0 65.6 65.6 Total AUMs (Rs bn) 1,757 2,149 2,607 3,151

Total premium mix - unwtd - of which equity AUMs (%) 32.0 32.0 32.0 32.0
EVOP as % of MCEV 20.5 16.2 16.0 15.8
- Participating 22.9 24.8 24.2 24.0
RoEV (%) 17.3 18.5 17.1 15.9
- Non-participating 28.4 27.3 27.9 28.1
Dividend % - 0.2 0.2 0.2
- ULIPs 48.7 47.9 47.9 47.9
Dividend payout ratio (%) - 11.5 9.8 14.2
Source: Company Data, PL Research
EPS, Rs 16.1 18.2 21.5 14.8
Embedded Value (Rs bn) 262.8 311.4 364.7 422.8
Source: Company Data, PL Research

July 22, 2020 7

 SBI Life Insurance Company

Analyst Coverage Universe

Sr. No. Company Name Rating TP (Rs) Share Price (Rs)

1 Axis Bank Hold 475 444

2 Bank of Baroda BUY 83 53

3 Federal Bank BUY 67 50

4 HDFC Bank BUY 1,265 1,098

5 HDFC Life Insurance Company Reduce 454 581

6 ICICI Bank BUY 436 369

7 ICICI Prudential Life Insurance Company Reduce 385 428

8 IDFC First Bank Sell 21 28

9 IndusInd Bank BUY 720 553

10 Kotak Mahindra Bank Accumulate 1,343 1,353

11 Max Financial Services Hold 518 546

12 Punjab National Bank BUY 40 37

13 SBI Life Insurance Company Hold 880 851

14 South Indian Bank BUY 11 8

15 State Bank of India BUY 254 192

PL’s Recommendation Nomenclature (Absolute Performance)

Buy : >15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly

July 22, 2020 8

 SBI Life Insurance Company

ANALYST CERTIFICATION
(Indian Clients)
We/I, Mr. Pritesh Bumb- MBA, M.com, Ms. Riddhi Mehta- CA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in
this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our
compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

(US Clients)
The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately
reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific
recommendation or views expressed in this research report.

DISCLAIMER
Indian Clients
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