KRChoksey has issued a BUY recommendation for SBI Life Insurance, with a target price of Rs 1,901, representing a 16.2% potential upside from the current market price of Rs 1,635. The research cites strong fundamentals, growth in Assets Under Management (AUM), and strategic investments in digital platforms as critical factors. While premium growth was subdued in some segments, robust renewal premiums and sustained profitability have reinforced KRChoksey's outlook. The report also underscores SBI Life’s effective cost management and strategic expansion through bancassurance and digital channels.

Financial Performance Overview

Gross Written Premium (GWP): SBI Life reported a GWP of Rs 204,132 Mn for Q2FY25, marking a modest growth of 1.2% YoY but a strong sequential increase of 31.1%. While this missed KRChoksey's estimates, the increase was led by a 15.8% YoY growth in renewal premiums.

Profit After Tax (PAT): The company’s PAT for Q2FY25 came in at Rs 5,294 Mn, reflecting a substantial 39.3% YoY increase and a marginal 1.9% QoQ improvement. This profitability underscores the company’s ability to manage costs despite market fluctuations.

Embedded Value (EV): SBI Life’s embedded value stood at Rs 660.7 Bn, growing by 28.9% YoY, with an operating ROEV of 19.5%. This signals a high efficiency in generating returns, supported by prudent capital allocation and an optimal product mix.

Revenue Drivers and Product Mix

New Business Premium (NBP): The NBP witnessed a decline of 13.6% YoY in Q2FY25, with a major drop of 30.3% in the single premium segment. First-year premiums, however, grew by 6.1% YoY, supported by favorable renewal premiums, taking the total premium to Rs 204,132 Mn.

Unit-Linked Insurance Plans (ULIPs): ULIPs constituted 61% of individual NBP, with a 19% YoY growth, benefitting from favorable equity markets. The company anticipates sustained interest in ULIPs, owing to rising equity markets.

Bancassurance and Agency Performance: Bancassurance remains the leading distribution channel, contributing 58.4% to APE in H1FY25. The agency channel, bolstered by the "Agency 2.0" initiative, contributed significantly with a YoY increase of 24.5%.

Profit Margins and Expense Management

VNB Margin: For Q2FY25, the Value of New Business (VNB) margin dropped to 26.9% from 28.5% a year earlier. Despite this contraction, sequential improvements of 10 basis points suggest that SBI Life is adeptly managing its product mix to maintain profitability.

Operating Cost and Commission Ratios: The H1FY25 cost ratio stood at 10.6%, rising slightly due to higher digital investments. The stable commission ratio of 4.7% indicates controlled distribution costs, aiding margin stability.

Persistency Metrics: The 13th-month persistency ratio improved to 86.4%, a YoY increase of 98 basis points. Additionally, the 61st-month persistency ratio grew by 438 basis points, demonstrating customer retention and loyalty.

Digital Transformation and Strategic Initiatives

YONO Integration and Digital Sales: Through SBI's YONO platform, SBI Life launched a pre-approved protection plan, selling over 33,000 policies in its first month. Digital channels now process 99% of individual proposals, indicating a rapid shift towards automation and customer-centric digital solutions.

Product Portfolio Expansion: SBI Life expanded its offerings by relaunching 15 products and introducing nine new ones, covering ULIPs, term insurance, endowment, and annuities. This diversification aligns with the company’s strategy to meet diverse customer needs and regulatory standards.

Market Leadership and Strategic Focus

Market Share: SBI Life maintains a dominant market position, with a 21.3% share in the private sector. Its individual NBP market share stands at 25.7%, underscoring its leadership in life insurance.

Product Adaptation to Regulatory Changes: In response to new IRDAI guidelines, SBI Life restructured non-participating products to comply with revised surrender values. This adaptability has positioned the company to mitigate regulatory risks and maintain product appeal.

Investment Strategy and Solvency

Solvency Ratio: As of Q2FY25, SBI Life reported a solvency ratio of 2.04x, comfortably above the regulatory minimum of 1.5x, reflecting financial resilience and an optimal balance of equity and debt portfolios.

Investment Portfolio Management: The company’s portfolio adjustments in response to declining bond yields have minimized interest rate risks, ensuring stable returns across both equity and debt holdings.

Future Outlook and Target Price

KRChoksey projects a 13.6% CAGR in GWP and 14% CAGR in VNB over FY24-26E, with a PAT growth of 21.5% CAGR. This anticipated growth is expected to strengthen SBI Life’s competitive position, backed by innovative digital strategies and expanding product lines.

KRChoksey’s BUY recommendation is anchored by a revised P/EV multiple of 2.2x on FY26E EVPS of Rs 865.7, resulting in a target price of Rs 1,901 per share. This implies a 16.2% potential upside, reinforcing SBI Life as an attractive investment in the life insurance sector.