While wave 3 is not a cause for concern yet, mgmt remains on the lookout for any spike in wave 3 claims induced by the delta variant.
In our interaction, mgmt seemed bullish on growth with an increasing proportion of unmatched protection and is likely to drive margin expansion. Proactive vaccination and digital activation of the sales force contributes to growth. Wave 2 delayed claims follow co. June’21 Covid estimates and reserves seem adequate, but mgmt is on alert for wave-3. There is not much price pressure from reinsurers at the moment. We increased the VNB estimate from 7 to 9% and increased the TP to Rs 1,380 (from Rs 1,240) by 2.9 times on June 23. To buy.
Strong growth momentum should continue: Mgmt appeared optimistic about premium growth for the year. The growth from July to August was very strong, oscillating between 30 and 70%, while September is also doing well. Growth is driven by both savings and protection. SBIL’s efforts to proactively immunize agency staff / force and to facilitate digital tools are paying off. SBI continues to be a key growth engine for all products; Non-SBI partners (such as SIB, PSB, UCO) show very high growth on a low basis. Currently, these bank bonds constitute between 2 and 2.5% of the NBP mix; SBIL expects its share to increase to ~ 8% over the next 3-4 years.
Focus on protection to keep increasing: SBIL recorded strong growth in protection (43% in FY21 and 76% in Q1FY22). SBIL has traditionally had high RoP protection with a mixture of ~ 85:15 for RoP: no RoP. The pure futures product launched this quarter will help diversify its offering and further increase the protection share in the product line – mgmt intends to increase the protection share to around 14-15% of NBP from around 12 % in FY 21. is also experiencing a sharp pull due to a higher disbursement rate in the SBI – withholding rates here have dropped from around 45% to 47%. However, in the group term, the company maintains a cautious approach.
Market conditions favor the growth of savings products: Favorable capital market conditions support the growth of ULIPs. SBIL saw its guarantees drop from year to year in the first quarter of fiscal year 22, but with the rate revision, it began to stimulate guarantee growth again. Annuities are a rapidly growing area of interest in the personal segment. Mgmt aims to increase the share of non-nominal savings to ~ 14-15% over the next several years, and ULIP’s share is likely to decline.
Reinsurance: SBIL has not faced strong pricing pressure from reinsurers due to a somewhat different product structure. RoP products have a much lower insured sum, which moderates the need for medical attention. Additionally, SBIL’s forward price has been broader. In recent discussions, SBIL also sees no indication from reinsurers to increase forward prices; a lower transfer rate could also help.
Wave 2 Covid delayed claims in line with bookings: Mgmt does not see a significant risk of exceeding its Covid bookings on June 21 of Rs 4.4 billion. While wave 3 is not a cause for concern yet, mgmt remains on the lookout for any spike in wave 3 claims induced by the delta variant.
Buying Stays: We keep buying and increase PT to Rs 1,380 (instead of Rs 1,240) thanks to better growth (FY22 APE growth estimated at 23%) and margin assumption (VNB increase estimated 7% to 9%) and a higher multiple of 2.9x on June 23 EV. We incorporated a VNB CAGR of 24% in fiscal year 21-24e. The stock is trading at 2.6x FY23e EV for an operating RoEV of 17%.
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