SBI Life APE beats estimates as GST mitigation supports VNB margin outlook

Investment View and Valuation

Motilal Oswal Financial Services Limited retains a Buy rating on SBI Life Insurance and revises its target price to Rs 2,240 from its July 24, 2026 results update. The target is based on 2 times FY28E price to embedded value.

The broker believes continued traction in non-linked products, full mitigation of GST 2.0 effects and investment in agency and digital distribution can support growth and improve value of new business (VNB) margins. It retains its annual premium equivalent (APE) estimates, cuts FY27E VNB margin by 50 basis points after the first-quarter performance and maintains its embedded-value estimates. Operating return on embedded value is projected at about 18 per cent in FY27E and FY28E.

1QFY27 Financial Performance

SBI Life Insurance reported strong 1QFY27 new-business APE of Rs 5,380 crore, up 36 per cent year on year and 10 per cent above Motilal Oswal's estimate. Absolute VNB grew 29 per cent year on year to Rs 1,410 crore, exceeding the broker's estimate by 5 per cent.

Quarterly VNB margin declined to 26.2 per cent from 27.4 per cent in 1QFY26 and was below the broker's 27.5 per cent estimate. Shareholder profit after tax rose 22 per cent year on year to Rs 720 crore, 7 per cent above the estimate. Gross premium increased 20 per cent year on year to Rs 21,290 crore, supported by 17 per cent growth in renewal premium and 40 per cent growth in first-year premium. Embedded value stood at Rs 85,290 crore at the end of 1QFY27, up 15 per cent year on year.

Product Mix and VNB Margin

Product trends were mixed. ULIP APE increased 7 per cent year on year, but its contribution to total APE fell to 45.5 per cent from 57.4 per cent. Par APE rose 33 per cent, non-par savings increased 26 per cent, individual protection grew 19 per cent and annuity grew 15 per cent. Group protection grew 310 per cent year on year because of lumpy business, lifting total protection APE but lowering VNB margin by 0.6 percentage points.

Management said the rising share of non-return-of-premium products has reduced average ticket size and caused protection growth to lag the industry. It also highlighted healthy demand for non-par savings amid favourable interest-rate dynamics, as customers prefer assured-return products.

Distribution and Growth Drivers

Distribution performance supports the growth outlook. Agency APE rose 20 per cent year on year, while agency productivity reached Rs 2 lakh. Individual APE through bancassurance increased 9 per cent, and individual APE per SBI branch reached Rs 45 lakh, up 7 per cent. Other channels, including brokers and digital, delivered 28 per cent growth in individual APE.

Motilal Oswal expects investments in agency and digital channels, together with a gradual recovery in bancassurance, to drive overall growth.

Costs, Persistency and Balance-Sheet Indicators

The cost ratio increased to 12 per cent from 10.8 per cent in 1QFY26. The commission ratio was 4.4 per cent and the operating-expense ratio was 7.7 per cent. The report attributes the increase in costs to the new labour code, greater protection coverage and higher sum assured.

Persistency improved in the 13-month, 25-month and 37-month cohorts to 84.4 per cent, 76.8 per cent and 70.9 per cent, respectively, although 49-month and 61-month persistency declined. Management expects the Covid cohort's 61-month persistency to normalise from 3QFY27.

Assets under management rose 10 per cent year on year to Rs 5,24,900 crore, while solvency remained at 1.96 times.

Management Outlook and Key Pressures

Management is confident of sustaining APE growth of about 14 to 15 per cent. It expects VNB margin to move towards the upper end of its 26 to 28 per cent guidance range as individual business increases and GST effects are mitigated by 3QFY27.

Motilal Oswal identifies GST changes and the lumpy group-business mix as near-term margin pressures. These are partly offset by favourable product mix, rising rider attachment and strong volumes.

Motilal Oswal Estimates