04 May , 2021 By : Kanchan Joshi
Shares of SBI Life Insurance Company Ltd are very close to their pre-pandemic highs and the company’s March quarter performance has given credence to this valuation boost.
SBI Life reported 63% growth in value of new business (VNB) and an expansion of VNB margin to 22.2%. On both these metrics, the company exceeded analysts’ expectations. Ergo, most have increased their expectations for the next year citing the healthy growth trajectory of the company and its conservative assumptions behind margins. “We raise VNB forecasts for FY22-23 by 9-10% as we factor better premium growth," wrote those at Jefferies India Pvt Ltd.
SBI Life’s strong track record on growth in the past years seems to have come to its help now. For a life insurance company, the costs of taking on board a customer is upfront while the returns are staggered over many years. Ergo, a jump in business growth today would pressure profits but is in fact salutary for future profitability. In this context, a rather flat net profit for the March quarter can be looked through.
The life insurer reported 46% growth in business on an annualised premium equivalent (APE) basis for FY21. Of course, March quarter growth figures are inflated largely due to a low base. For instance, the 46% increase in retail APE for March quarter is due to the 13% contraction in the corresponding quarter last year. Nevertheless, analysts at Jefferies India Pvt Ltd point out that on a compounded annual growth rate basis, SBI Life saw a healthy 13% growth in total APE over the past two fiscal years. A large part of the growth has come in from a surge in non-participatory products while the share of protection has remained unchanged. Market linked products too have shown a strong 47% growth for FY21, and they remain the biggest segment in the portfolio.
What’s more is that SBI Life saw growth driven by not just its parent’s branches but also other banks network. Its tie-ups with other partners have served much more than parent State Bank of India’s network during FY21.
While the pandemic may have made Indians more mindful of life insurance, there is still a challenge in terms of pushing products to more customers beyond bank branches. Restrictions due to the second wave have widened in many states, limiting operations. That said, SBI Life’s profitability metrics have all the ingredients in place for improvement, analysts said. The fact that shares have underperformed rival HDFC Life Insurance Company Ltd indicates there is room for more upside now.
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