SBI Life APE growth stays strong despite GST-led VNB margin pressure

Investment View and Growth Outlook

Prabhudas Lilladher maintained its BUY rating on SBI Life Insurance Company following its July 25, 2026 Q1FY27 result update. The broker retains a healthy FY26-FY28E growth outlook despite near-term pressure on value of new business (VNB) margins. Annualised premium equivalent (APE) is expected to deliver approximately 13% CAGR over FY26-FY28E, supported by strong first-quarter volumes, recovery in ULIPs and sustained protection growth.

The target price remains unchanged at Rs 2,200 per share, compared with a CMP of Rs 1,859.

Q1FY27 Business Performance

SBI Life reported Q1FY27 APE of Rs 53,700 million, up 35.3% year-on-year and 23.5% above Prabhudas Lilladher's estimate of Rs 43,486 million. Growth was driven principally by group protection, which increased three times year-on-year. Management cautioned, however, that the group term insurance contribution was lumpy and is not expected to recur at the same scale in subsequent quarters.

Individual protection APE grew 19% year-on-year as the company shifted from Return of Premium products towards pure protection products, which have lower average ticket sizes. PAR and annuity APE grew 33% and 15% year-on-year, respectively, on a small base. ULIP growth was softer at 7.5%, and ULIPs' APE share declined to 45.6% from 57.4% a year earlier.

VNB Margin and Cost Pressures

Q1FY27 VNB rose 29.4% year-on-year to Rs 14,100 million, 17.9% above the broker's estimate. VNB margin nevertheless declined 120 basis points year-on-year to 26.3%, 124 basis points below the estimate, owing to an unfavourable product mix with a higher group-business share and the GST impact.

Management reiterated its 26-28% full-year VNB-margin guidance and indicated that margins have bottomed for FY27, with a move towards the upper end of that range expected. The approximately 110-120 basis point GST impact is expected to continue for one more quarter and be offset through product mix rather than cost or commission reductions. Higher expenses also reflected stamp duty linked to higher sum assured and a one-time labour-code impact.

Distribution and Product Mix

Distribution trends remained constructive in Q1FY27. Bancassurance, agency and other channels accounted for 47.4%, 25.1% and 27.5% of APE, respectively.

• Bancassurance: Grew approximately 10% year-on-year, with SBI the primary contributor. Other banks grew 19%.
• Agency: APE increased 24% following long-term investment in branches and agents. Management expects agency growth to continue or strengthen through the year.
• New partnership: A new J&K Bank bancassurance tie-up is expected to begin contributing during the quarter.
• Other channels: Banks, brokers, direct and online channels, and corporate agents are becoming more important. The ex-SBI bancassurance mix is approximately 80% non-ULIP.

Persistency and Other Operating Metrics

Embedded value grew 15% year-on-year to Rs 853,000 million, while AUM grew 10% to Rs 5,248,500 million. The solvency ratio was comfortable at 196%.

The 61-month persistency ratio declined to 58.4% from 62.8% in Q1FY26 because of a COVID cohort. Management expects normalisation by year-end as this cohort passes through the tenure bucket. Other persistency measures remained broadly stable, with the 13-, 25-, 37- and 49-month ratios at 87.7%, 78.2%, 72.4% and 69.1%, respectively.

The planned regular deferred annuity launch was delayed and is now expected within the next quarter.

Estimates and Valuation

Prabhudas Lilladher raised its FY27E and FY28E APE estimates by 0.4%. It cut VNB estimates by 1.1% and 0.7%, respectively, as forecast VNB margins were reduced by 40 basis points to 27.2% for FY27E and by 30 basis points to 27.4% for FY28E.

The broker uses an appraisal-value framework. It applies a 14.6 times multiple to FY28E VNB of Rs 85,502 million to derive a structural value of Rs 1,252,215 million, and adds FY27E embedded value of Rs 954,750 million. This produces an appraisal value of Rs 2,206,965 million, or approximately Rs 2,200 per share, implying 2.0 times FY28E price-to-embedded value.

Key Risks to the Thesis

• Normalisation after the lumpy group-protection contribution could affect subsequent growth comparisons.
• GST-related margin drag could continue beyond the expected additional quarter.
• An unfavourable business mix may continue to pressure VNB margins.
• Slower ULIP growth remains a risk to the overall product mix and APE trajectory.
• Elevated costs, including stamp duty and other one-time expenses, could weigh on profitability.
• Weaker 61-month persistency could remain a concern if the expected COVID-cohort normalisation is delayed.