Compounding machine with best-in-class margins
SBI Life Insurance (SBILIFE) has been a consistent compounder with FY20-25 APE CAGR at 15% vs. 6% for the industry (15% YoY in YTDFY26 vs 13% for the industry), supported by an extensive SBI branch network and one of the largest agent bases in the private life insurance industry. We expect the growth trajectory to remain stable at ~15% for FY26-28 as well.
The company is gradually shifting its mix toward higher-margin traditional products, aiming to reduce ULIP share in individual APE from ~67% currently to ~60%. Protection is growing significantly faster than the overall business, and the company is targeting to increase the share to 9.0-9.5% of individual APE. Management expects the APE growth trajectory to further improve from ~15% as the product mix shifts towards traditional products.
The gradual shift toward higher-margin products, robust operational efficiency, and rising rider attachments is expected to help in maintaining VNB margin in the range of 26-28%, despite temporary headwinds from the loss of input tax credit. We expect the VNB margin to improve by 50bp YoY each in FY27/28, reaching 28.5% in FY28.
While the potential implementation of commission caps may disrupt bancassurance economics, posing near-term risks to new business growth and distribution expansion, we expect low impact for SBILIFE, given its commission ratio (~4.8% in 9MFY26) is significantly better than the industry average. However, a drastic reduction in commission may lead to renegotiations with the bank.
The combination of sustained APE growth, stable VNB margins, and disciplined cost management positions SBILIFE to achieve ~18% operating RoEV going forward. We reiterate our BUY rating with a TP of INR2,400 (based on 2.1x FY28E P/EV).
