BUY Strong execution continues · SBI Life Insurance. BUY . HDFC securities Institutional Research is also available on Bloomberg HSLB & Thomson Reuters . Strong execution

RESULTS REVIEW 4QFY19 26 APR 2019

SBI Life Insurance BUY

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters

Strong execution continues FY19 NBP growth of 25.7%, was driven by higher share of protection (NBP: 11.9%, +643bps YoY), which in turn led to adj. VNBM expansion of 140bps to 19.8%. Consequently absolute adj. VNB grew a stellar 22.1% YoY to Rs 19.2bn. SBILIFE is our top BUY with a TP of Rs 785 (FY20 EV + 19.8x FY21E VNB).

HIGHLIGHTS OF THE QUARTER

Protection business (Rs 2.5bn, 2.1x YoY), drove SBI Life’s total APE 14.4% YoY to Rs 31.0bn. FY19: Total NBP/APE grew 25.7/13.3% YoY to Rs 137.9/96.9bn.

Protection share on APE basis improved to 8.1% (+364bps YoY) to Rs 2.5bn. For FY19, protection share was 6.8% (+143bps YoY).

FY19 opex ratio improved to 9.5% (-149bps YoY) and adj. VNB margin expanded 140/20bps YoY/QoQ to 19.8%. FY19 adj. VNB was Rs 19.2bn +22.1% YoY.

VNBM drivers: Mix contributed +300bps while a total of -160bps was contributed by operating assumption change (-) and positive operating experience (+). Increased digital investments led to higher unit costs. Management expects efficiencies over time.

On reported VNBM basis, management stated that protection business contributes ~30% to overall VNB, and delivers a margin of ~70%.

SBILIFE endeavours to increase margins by 1) increasing share of protection and other high margin (NPAR/PAR) business, 2) increasing proportion of single premium policy sales, and 3) launch and sale of immediate annuity products.

FY19: Banca channel delivered strong protection growth with NPAR at Rs 3.5bn +167% YoY.

Near-term outlook: Stock is expected to move up gradually as no near term triggers exist and 1Q is seasonally weak.

STANCE Given the strong distribution footprint of its parent SBI (24k+ branches), improving protection share (8.1%), lowest operating cost ratios (9.5%), improving margins (VNBM: 19.8%) and tailwinds from financialisation of savings we expect SBILIFE to deliver strong FY19-21E VNB CAGR of 15.5% p.a. and RoEVs of ~17.5-18%. Lower than expected growth and protection share remain a key risk to our call.

FINANCIAL SUMMARY (Rs mn) 4QFY19 4QFY18 YoY(%) 3QFY19 QoQ(%) FY18 FY19 FY20E FY21E NBP 43.1 37.6 14.6 39.2 9.9 109.7 137.9 156.8 179.3 APE 31.0 26.9 15.2 28.9 7.3 85.4 96.9 109.8 124.3 VNB NA NA NM NA NM 15.7 19.2 22.2 25.6 VNB Margin (%) # 19.8 18.4 140bps 19.6 20bps 18.4 19.8 20.2 20.6 EV 201.7 237.3 277.0 322.8 P/EV (x) 3.0 2.6 2.2 1.9 P/VNB (x) 26.3 19.7 15.2 11.4 ROEV (%) 16.9 18.8 17.9 17.7

# Refers are FYTD margins Source: Company, HDFC sec Inst Research

INDUSTRY INSURANCE CMP (as on 25 Apr 2019) Rs 614 Target Price Rs 785 Nifty 11,642

Sensex 38,731

KEY STOCK DATA

Bloomberg SBILIFE IN

No. of Shares (mn) 1,000

MCap (Rs bn) / ($ mn) 614/8,749

6m avg traded value (Rs mn) 1,002

STOCK PERFORMANCE (%)

52 Week high / low Rs 775/485

3M 6M 12M

Absolute (%) (0.8) 9.0 (19.8)

Relative (%) (8.4) (5.9) (32.1)

SHAREHOLDING PATTERN (%) Dec-18 Mar-19 Promoters 84.1 69.8 FIs & Local MFs 4.4 4.4 FPIs 4.9 14.1 Public & Others 6.6 11.8 Pledged Shares Nil Nil Source : BSE

Madhukar Ladha, CFA [email protected] +91-22-6171-7323 Keshav Binani [email protected] +91-22-6171-7325

mailto:[email protected]

SBI LIFE: RESULTS REVIEW 4QFY19

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Five quarters at a glance (Rs Bn) 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 YoY (%) QoQ (%) Premium earned 92.8 47.6 76.8 91.7 113.8 22.6 24.1 Ceding -0.4 0.0 -0.3 -0.3 -0.4 -10.1 33.3 Net premium earned 92.4 47.5 76.6 91.4 113.4 22.8 24.1 Investment income 8.3 22.2 20.7 30.4 42.7 416.2 40.5 Other income 0.2 0.2 0.2 0.2 0.2 13.0 0.0 Total income 100.8 69.9 97.5 122.0 156.3 55.0 28.1 Commission 3.8 2.0 3.2 3.7 4.6 22.7 24.3 Operating expenses 6.1 5.5 6.3 6.4 7.9 30.5 23.4 Policyholder tax 0.5 1.5 0.4 0.5 0.3 -38.1 -40.0 Claims paid (net) 35.0 21.6 27.7 32.8 70.8 102.2 115.9 Change in actuarial liability 51.6 35.7 57.4 75.9 67.8 31.3 -10.7 Total expenses 97.0 66.3 95.0 119.3 151.4 56.2 26.9 PBT 3.9 3.6 2.5 2.7 4.9 26.5 81.5 Tax 0.0 0.1 0.0 0.1 0.3 2400.0 200.0 PAT 3.9 3.5 2.5 2.6 4.6 19.1 76.9 Source: Company, HDFC sec Inst Research

Operating and performance metrics Particulars (Rs bn) 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 YoY (%) QoQ (%) NBP Individual Savings 25.9 13.0 23.1 27.8 28.7 10.8 3.2 Par 6.2 3.2 4.6 4.8 5.0 -19.4 4.2 Non Par 0.7 0.3 0.6 0.7 0.6 -14.3 -14.3 ULIP 19.0 9.5 17.9 22.3 23.1 21.6 3.6 Group Savings 9.6 5.6 8.1 6.6 8.5 -11.5 28.8 Protection 2.1 2.1 3.7 4.8 5.8 176.2 20.8 Individual Protection 0.2 NA NA 1.1 1.6 700.0 45.5 Group Protection 1.9 NA NA 3.7 4.2 121.1 13.5 Total 37.6 20.7 34.9 39.2 43.0 14.4 9.7 Product mix on APE basis Individual Savings 24.7 12.0 21.6 26.1 27.4 10.9 5.0 Par 6.5 3.3 4.7 4.9 5.2 -20.0 6.1 Non Par 0.2 0.1 0.1 0.1 0.1 -50.0 0.0 ULIP 18.0 8.6 16.8 21.1 22.1 22.8 4.7 Group Savings 1.2 0.6 0.8 0.7 1.1 -8.3 57.1 Protection 1.2 0.6 1.4 2.1 2.5 108.3 19.0 Individual Protection 0.2 0.2 0.8 1.1 1.6 700.0 45.5 Group Protection 1.0 0.4 0.6 1.0 0.9 -10.0 -10.0 Total APE 27.1 13.2 23.8 28.9 31.0 14.4 7.3 Source: Company, HDFC sec Inst Research

Gross premium earned increased 22.8% YoY on a formidable base to Rs 113.4bn. Operating expenses increased 30.5% YoY. Led by strong investment income (+416.2 % YoY) PAT increased 19.1% YoY to Rs 4.6bn. NBP increased 14.4% YoY, to Rs 43.0bn. Individual protection APE growth continues to be strong as it grew 7x/45.5% YoY/QoQ to Rs 1.6bn. Group APE growth at -27.5% YoY is optically muted as the 5yr regular pay credit protect policy has been changed to a single premium one.


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Particulars (Rs bn) 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 YoY (%) QoQ (%) Product mix - APE basis (%) Individual Savings 91.1 90.9 90.8 90.3 88.4 -276bps -192bps PAR 24.0 25.0 19.7 17.0 16.8 -721bps -18bps Non-PAR 0.7 0.8 0.4 0.3 0.3 -42bps -2bps ULIP 66.4 65.2 70.6 73.0 71.3 487bps -172bps Group Savings 4.4 4.5 3.4 2.4 3.5 -88bps 113bps Protection 4.4 4.5 5.9 7.3 8.1 364bps 80bps Individual Protection 0.7 1.5 3.4 3.8 5.2 442bps 136bps Group Protection 3.7 3.0 2.5 3.5 2.9 -79bps -56bps Total APE 100 100 100 100 100 Individual APE share (%) 87.7 92.4 94.1 94.1 93.5 583bps -57bps Group APE share (%) 12.3 7.6 5.9 5.9 6.5 -583bps 57bps Reported VNB Margin (%)# 16.2 17.3 17.3 17.5 17.7 150bps 20bps Adjusted VNB Margin (%)# 18.4 19.2 19.2 19.6 19.8 140bps 20bps Source: Company, HDFC sec Inst Research Note: #VNB margins for FY18 and for FYTD periods in respective quarters of FY19.

Total protection share increased to 8.1% (+364bps YoY). Supported by increase in protection share, adjusted VNB margin increased 140bps YoY to 19.8%.


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Product mix (NBP basis) 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 YoY (%) QoQ (%) Individual Savings 68.9 62.8 66.2 70.9 66.7 -214bps -417bps Par 16.5 15.5 13.2 12.2 11.6 -486bps -62bps Non Par 1.9 1.4 1.7 1.8 1.4 -47bps -39bps ULIP 50.5 45.9 51.3 56.9 53.7 319bps -317bps Group Savings 25.5 27.1 23.2 16.8 19.8 -576bps 293bps Protection 5.6 10.1 10.6 12.2 13.5 790bps 124bps Individual Protection 0.5 NA NA 2.8 3.7 319bps 91bps Group Protection 5.1 NA NA 9.4 9.8 471bps 33bps Total 100.0 100.0 100.0 100.0 100.0 Channel mix (%) Banassurance 55.3 61.0 61.0 70.7 61.8 650bps -888bps Agency 24.0 23.0 19.8 21.0 21.0 -304bps 0bps Others 20.7 16.0 19.2 8.3 17.2 -345bps 888bps Operating expenses Ratio (%) 11.0 9.7 13.4 9.6 9.5 -149bps -10bps AUM (Rs bn) 1,163 1,203 1,262 1,342 1,410 21.3 5.1 Linked (%) 47 47 47 48 49 200bps 100bps Non-Linked (%) 53 53 53 52 51 -200bps -100bps Equity (%) 23 23 22 22 23 0bps 100bps Debt (%) 77 77 78 78 77 0bps -100bps Persistency (%) 13th month persistency 83.0 83.7 80.0 80.1 85.1 207bps 497bps 25th month persistency 75.2 75.1 71.7 72.4 76.7 145bps 421bps 37th month persistency 70.0 71.2 68.4 67.4 71.4 139bps 397bps 49th month persistency 63.9 63.4 64.9 66.1 66.4 253bps 29bps 61st month persistency 58.4 57.0 55.5 56.2 57.2 -117bps 99bps Source: Company, HDFC sec Inst Research

As management focus shifted towards protection business, savings business share reduced. Share of group savings reduced sharply by 576bps YoY to 19.8%. SBI Life continues to show cost discipline as opex ratio was contained at 9.5% (-149bps YoY) AUM growth was robust at 21.3% YoY taking total AUM to Rs 1.4tn.


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Annual Data (Rs mn) FY16 FY17 FY18 FY19 Total APE 48,782 66,028 85,400 96,900 Growth (%) 35.4 29.3 13.5 Individual APE 44,879 60,192 77,900 90,800 Growth (%) 34.1 29.4 16.6 Group APE 3,903 5,836 7,500 6,100 Growth (%) 49.5 28.5 (18.7) VNB 6,990 10,368 15,700 19,200 Growth (%) 48.3 51.4 22.3 VNB Margin (%) 14.3 15.7 18.4 19.8 GWP Income -First year premium 46,305 62,072 81,394 90,572 -Renewal premium 87,188 108,713 143,881 191,974 -Single premium 24,760 39,366 28,268 47,348 New business premium 71,066 101,439 109,661 137,920 Growth (%) 42.7 8.1 25.8 Shareholders profit (Pre tax) 8,738 9,746 11,845 13,729 Growth (%) 11.5 21.5 15.9 Product mix- APE(%) Individual 87.3 89.5 92.5 93.7 PAR 30.7 16.6 24.4 18.7 Non-Par 1.2 0.7 0.8 0.4 ULIP 53.3 70.9 66.5 70.8 Protection 2.2 1.2 0.7 3.8 Group 12.3 10.5 7.5 6.3 Savings 4.2 5.5 2.8 3.3 Protection 8.1 5.1 4.7 3.0 Channel Mix - NBP (%) Banassurance 60.3 53.0 62.0 64.0 Agency 24.9 22.0 25.0 21.0 Others 14.8 25.0 13.0 15.0 Total 100 100 100 100 AUM (Rs bn) 798 977 1,163 1,410 Equity (%) 22.5 23.2 23.0 23.0 Debt (%) 77.5 76.8 77.0 77.0 Linked (%) 55.0 54.0 53.0 49.0 Non-linked (%) 45.0 46.0 47.0 51.0 Source: Company, HDFC sec Inst Research

FY19 renewal premium growth was 33.4% reflecting sound underwriting.


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APE trend Product Mix On NBP basis

Source: Company, HDFC sec Inst Research


VNB Trend AUM Mix

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

4QFY19 APE grew 15.2%, led by growth in group APE(+700%), whereas on a hefty base Individual APE grew at 22.9% YoY. Heartening to see consistent rise in protection business as its share in total NBP shot up to 13.5% (+790bps) Rise is share of protection drove VNB margin to 19.8% (+140 bps YoY) AUM continues to be debt heavy (77% share) which we believe supports persistencies during volatile equity market conditions and also shows low mis-selling.

26.9

13.2

23.828.9

31.0

11.8

2.9

13.7

16.8

15.2

0.05.0

10.015.020.025.030.035.040.045.050.0

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

APE (Rs bn) Growth (%)

45 50 5646 51 57 54

22 1119

15 1312 12

22

2

1 22 1

22 3218

27 23 17 20

9 5 5 10 11 12 13

0102030405060708090

100

FY16

FY17

FY18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

ULIP PAR Non-PAR Group Protection

15.7 2.5 7.1 13.0 19.2

18.4

18.919.2

19.619.8

17.5

18.0

18.5

19.0

19.5

20.0

-

5.0

10.0

15.0

20.0

25.0

FY18

1QFY

19

1HFY

19

9MFY

19

FY19

VNB Rs Bn VNB margin - RHS

23 23 23 22 22 23

77 77 77 78 78 77

0102030405060708090

100

FY17

FY18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

Equity (%) Debt (%)

1,203 bn1,163 bn977 bn 1,262bn 1,342bn 1,410bn


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Persistency Trend Channel Mix On NBP

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Change in estimates

Rs bn FY20E FY21E

New Old Change (%) New Old Change (%)

APE 109.8 109.8 0.0 124.3 124.3 0.0 VNB 22.2 22.0 1.0 25.6 25.1 2.0 VNB Margin (%) 20.2 20.0 20.0bps 20.6 20.2 40.0 Embedded Value 277.0 278.5 -0.5 322.8 329.1 -1.9 Source: HDFC sec Inst Research estimates

Persistencies improved across all time buckets. Bancassurance channel continues to have a lion share in the channel mix. Banca channel growth (+27.8%) outperformed total NBP growth (+14.4%) during 4QFY19. We have fine-tuned our VNB, VNB margin and EV forecasts.

83

75.2

70

63.9

58.4

83.7

75.1

71.2

63.4

57.0

80.0

71.7

68.4

64.9

55.5

80.1

72.4

67.4

66.1

56.2

85.1

76.7

71.4

66.4

57.2

0102030405060708090

13th month

25th month

37th month

49th month

61st month

4QFY18 1QFY19 2QFY19 3QFY19 4QFY19

5362 61 61

71 62

2225 23 20

2121

2513 16 19

8 17

0102030405060708090

100

FY17

FY18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

Banassurance Agency Others


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Sensitivity Analysis –FY19 Scenario Change in EV% Change in VNB% Reference Rate +100 bps -5% 3% Reference Rate -100 bps 5% -3% Decrease in Equity Value 10% -1% - Proportionate change in lapse rate +10% -1% -6% Proportionate change in lapse rate -10% 1% 6% Mortality / Morbidity +10% -2% -7% Mortality / Morbidity -10% 2% 7% Maintenance Expense +10% -1% -2% Maintenance Expense -10% 1% 2% Mass Lapse for ULIPs in the year after the surrender penalty period of 25% -2% -8% Mass Lapse for ULIPs in the year after the surrender penalty period of 50% -5% -18% Tax Rate Change to 25% -8% -15% Source: Company, HDFC sec Inst Research

VNB continues to be most sensitive to mass lapses after the surrender penalty period of 50%.


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RoEV stack up chart

Source: Company, HDFC sec Inst Research Embedded Value movement Particulars (Rs mn) FY17 FY18 FY19 FY20E FY21E Opening IEV 125,475 174,200 201,700 237,300 276,991 Value added by new business 10,368 15,700 19,186 22,180 25,603 Expected return on existing business 10,862 14,100 16,514 19,696 22,990 Variance in Operating experience 3,060 1,600 800 1,000 1,000 Change in operating assumptions 5,963 (100) (1,000) (500) (500) Other operating variance (1,379) IEV operating earnings 28,874 31,300 35,500 42,376 49,093 Economic variances 12,835 (1,800) 2,500 0 0 Other non-operating variances 0 0 0 0 0 Total IEV earnings 41,709 29,500 38,000 42,376 49,093 Capital contributions / dividend payouts (1,500) (2,000) (2,400) (2,685) (3,255) Closing IEV 165,684 201,700 237,300 276,991 322,829 *FY18 opening IEV adjusted for effective tax rate Source: Company, HDFC sec Inst Research

Negative operating assumption change caused negative variance in EV walk. This was result of increased digital investments leading to higher unit maintenance costs. Management expects this to reverse. Management has seen positive operating variance in mortality and persistency, while seeing slightly negative variance in expenses. Change in economic assumptions caused RoEVs to increase in FY19.

8.3 9.0 9.5 9.3 9.2

8.7 8.1 8.2 8.3 8.3

2.4 0.9 0.4 0.4 0.44.8

-0.1 -0.5 -0.2-0.2

10.2

-1.0

0.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

FY17 FY18 FY19 FY20E FY21E

Economic variances Other operating variance Change in operating assumptionsVariance in operating experience Expected return on existing business VNB as % of opening EV


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Industry NBP data

Particulars Individual (Rs bn) Group (Rs bn) Total (Rs bn)

FY16 FY17 FY18 FY19 YOY (%) FY16 FY17 FY18 FY19 YOY (%) FY16 FY17 FY18 FY19 YOY (%) Aditya Birla Sun Life 7.1 9.6 11.5 22.0 91.0 15.1 15.7 15.1 21.9 44.8 22.2 25.3 26.6 43.9 64.8 Bajaj Allianz Life 8.9 10.7 14.6 18.0 23.7 19.9 22.2 28.4 31.2 10.1 28.8 32.9 42.9 49.2 14.7 Bharti Axa Life 3.6 4.0 4.7 6.4 37.7 1.8 2.1 2.6 2.7 1.4 5.4 6.1 7.3 9.1 24.6 DHFL Pramerica Life 1.8 2.2 3.6 3.2 -13.0 5.4 6.6 10.9 9.1 -16.8 7.2 8.8 14.5 12.2 -15.8 HDFC Standard Life 36.6 42.0 59.4 76.4 28.6 28.3 45.0 54.0 73.3 35.7 64.9 87.0 113.4 149.7 32.0 ICICI Prudential Life 53.6 69.8 84.0 81.4 -3.1 14.1 8.9 7.2 21.1 192.0 67.7 78.6 91.3 102.5 12.3 Kotak Mahindra Life 10.6 14.4 19.7 21.3 8.1 11.5 14.1 14.5 18.5 26.9 22.1 28.5 34.3 39.8 16.1 Max Life 26.1 33.1 39.8 47.5 19.1 2.7 3.6 3.6 4.1 13.5 28.8 36.7 43.5 51.6 18.7 SBI Life 49.8 64.7 84.1 96.4 14.6 21.3 36.8 25.6 41.6 62.4 71.1 101.5 109.7 137.9 25.8 Tata AIA Life 6.1 10.5 14.0 23.5 67.5 1.3 0.8 0.9 1.3 45.8 7.4 11.3 14.9 24.8 66.3 Private players Total 255 321 404 471 16.6 155 186 190 259 36.8 410 507 593 730 23.1 LIC 328 456 517 510 -1.4 649 788 828 912 10.1 977 1,244 1,346 1,422 5.7 Industry total* 583 777 921 981 6.5 804 974 1,018 1,171 15.1 1,386 1,751 1,939 2,152 11.0 Source: IRDAI data, HDFC sec Inst Research * Total will not add up since we have excluded smaller sized private players Market share on NBP basis (%)

Particulars Individual Group

FY16 FY17 FY18 FY19 YOY (bps) FY16 FY17 FY18 FY19 YOY (bps) Aditya Birla Sun Life 2.9 3.0 2.9 4.7 182 8.0 8.5 8.0 8.4 47 Bajaj Allianz Life 3.6 3.3 3.6 3.8 22 14.9 12.0 14.9 12.0 -291 Bharti Axa Life 1.2 1.3 1.2 1.4 21 1.4 1.1 1.4 1.0 -36 DHFL Pramerica Life 0.9 0.7 0.9 0.7 -23 5.7 3.5 5.7 3.5 -225 HDFC Standard Life 14.7 13.1 14.7 16.2 152 28.5 24.2 28.5 28.2 -22 ICICI Prudential Life 20.8 21.7 20.8 17.3 -352 3.8 4.8 3.8 8.1 433 Kotak Mahindra Old Mutual Life 4.9 4.5 4.9 4.5 -36 7.7 7.6 7.7 7.1 -55 Max Life 9.9 10.3 9.9 10.1 21 1.9 1.9 1.9 1.6 -33 SBI Life 20.8 20.2 20.8 20.5 -36 13.5 19.8 13.5 16.0 252 Tata AIA Life 3.5 3.3 3.5 5.0 152 0.5 0.4 0.5 0.5 3 Private players* 43.8 41.3 43.8 48.0 417.0 18.6 19.1 18.6 22.2 351 LIC 56.2 58.7 56.2 52.0 -417.0 81.4 80.9 81.4 77.8 -351 Industry 100 100 100 100 0 100 100 100 100 0

Source: IRDAI data, HDFC sec Inst Research * Total private insurers’ market share with respect to total market, whereas individual private insurers market share is with respect to total private market.


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Valuation Comps Unit Bloomberg Ticker IPRU MAXF SBILIFE HDFCLIFE Rating NEU BUY BUY NR Current market price Rs 368 438 615 398 Market Capitalisation Rs bn 529 118 615 801 Target price Rs 400 619 785 342* Upside/(Downside) % 8.6 41.3 27.6 (14.2) Profitablity FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E VNB Margin % 17.0 17.3 17.5 20.6 20.8 21.0 19.8 20.2 20.6 24.2 24.4 24.6 Total RoEV % 19.6 15.3 15.6 20.7 20.8 20.9 18.8 17.9 17.7 19.1 18.5 18.1 Operating RoEV % 20.2 15.3 15.6 20.7 20.8 20.9 17.6 17.9 17.7 19.1 18.5 18.1 Non-operating RoEV % -0.6 0.0 0.0 0.0 0.0 0.0 1.2 0.0 0.0 0.0 0.0 0.0 RoE % 17.1 25.7 25.7 25.8 25.8 25.7 19.2 19.1 19.7 23.8 24.8 26.0

Valuation at CMP P/EV x 2.4 2.2 2.0 2.0 1.7 1.5 2.6 2.2 1.9 4.5 3.8 3.3 P/EVOP x 13.9 16.0 14.1 13.0 11.3 9.8 17.3 14.5 12.5 27.6 24.1 21.1 Implied P/VNB x 23.5 19.0 16.6 13.2 9.5 6.3 19.7 15.2 11.4 43.2 36.3 30.0 Implied P/VIF x 3.7 3.3 3.0 3.7 3.2 2.7 4.0 3.5 3.1 6.8 6.0 5.2 P/B x 7.7 6.8 6.0 4.9 4.1 3.4 8.2 7.0 6.0 14.4 12.1 10.0 P/E x 46.0 28.1 24.6 21.9 18.5 15.6 46.4 39.8 32.8 65.6 53.0 42.1 P/AUM x 0.4 0.3 0.2 0.3 0.2 0.2 0.8 0.4 0.3 0.6 0.5 0.5

Valuation at TP P/EV x 2.7 2.4 2.2 2.8 2.4 2.1 3.3 2.8 2.4 3.8 3.3 2.8 P/EVOP x 15.1 17.4 15.4 18.4 15.9 13.8 22.1 18.5 16.0 23.7 20.7 18.1 Implied P/VNB x 27.0 22.1 17.7 24.3 19.0 14.5 28.5 22.9 18.1 35.3 29.3 23.9 Implied P/VIF x 4.0 3.6 3.3 5.2 4.5 3.9 5.2 4.5 4.0 5.8 5.1 4.5 P/B x 8.4 7.4 6.5 6.9 5.8 4.8 10.5 9.0 7.6 12.4 10.4 8.6 P/E x 50.0 30.5 26.8 30.9 26.1 22.0 59.2 50.8 41.9 56.3 45.5 36.2 P/AUM x 0.5 0.3 0.3 0.2 0.2 0.1 0.6 0.5 0.4 0.5 0.5 0.4

Per Share data EV Rs 151 167 186 223 257 297 237 277 323 89 105 122 EVOP Rs 26 23 26 40 47 54 36 42 49 14 17 19 VNB Rs 9 11 12 21 24 28 19 22 26 7 8 9 VIF Rs 99 110 122 152 176 205 152 174 199 59 67 76 Book Value Rs 48 54 62 90 108 129 75 87 103 28 33 40 Earnings Rs 8 13 15 20 24 28 13 15 19 6 8 9 AUM Rs 829 1,295 1,507 1,647 1,924 2,249 1,410 1,697 2,056 627 743 881 ANW Rs 51 57 63 102 115 132 86 104 124 30 38 47


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Bloomberg Ticker Unit IPRU MAXF SBILIFE HDFCLIFE Key parameters FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E APE Rs bn 78 88 100 39 45 52 97 110 124 60 67 75 VNB Rs bn 13 15 17 8 9 11 19 22 26 14 16 18 Total EVOP Rs bn 37 33 37 15 18 21 36 42 49 29 33 38 Operating EVOP Rs bn 38 33 37 15 18 21 36 42 49 29 33 38 Non- operating EVOP Rs bn (1) 0 0 0 0 0 3 0 0 0 0 0 EV Rs bn 216 240 267 86 99 114 237 277 323 179 210 246 Net worth Rs bn 69 78 89 35 41 49 75 87 103 56 66 80 Net Profit Rs bn 11 19 21 8 9 11 13 15 19 12 15 19 AUM Rs bn 1,189 1,859 2,164 631 738 862 1,410 1,697 2,056 1,261 1,495 1,773

Growth YOY APE % 0.1 12.4 13.7 19.7 16.0 15.0 13.5 13.3 13.2 10.4 12.1 12.6 VNB % 3.3 14.2 15.0 22.1 17.2 16.1 22.2 15.6 15.4 12.7 13.0 13.5 Total EVOP % (3.0) (10.3) 13.3 19.0 15.6 15.3 13.4 19.4 15.9 (1.2) 14.4 14.6 Operating EVOP % 3.2 (13.2) 13.3 19.0 15.6 15.3 13.4 19.4 15.9 8.4 14.4 14.6 Non- operating EVOP % NM NM NM NM NM NM NM NM NM NM NM NM EV % 15.1 10.9 11.1 14.9 15.3 15.6 17.7 16.7 16.5 17.8 17.4 17.1 Net worth % 4.5 13.6 13.7 19.0 19.4 19.8 17.0 17.1 17.7 18.4 19.2 20.2 Net Profit % (29.3) 64.1 13.9 29.2 18.3 18.7 15.3 16.4 21.2 11.4 23.7 25.9 AUM % 15.0 15.8 16.3 20.9 16.8 16.9 21.3 20.4 21.1 18.3 18.6 18.5 Source: Company financials and disclosures, HDFC sec Inst Research *Fair Value


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Operational Comps

IPRU MAXF SBILIFE HDFCLIFE APE mix FY16 FY17 FY18 FY19 FY16 FY17 FY18 FY16 FY17 FY18 FY19 FY16 FY17 FY18 Individual Rs bn 49.7 65.2 75.8 74.4 21.0 26.4 32.2 44.9 60.2 77.9 90.8 34.3 37.4 48.9 Group Rs bn 1.4 1.1 2.1 3.7 0.1 0.2 0.3 3.9 5.8 7.5 6.1 1.9 3.5 6.3 APE (Rs bn) Rs bn 51.1 66.3 77.9 78.0 21.1 26.6 32.5 48.8 66.0 85.4 96.9 36.2 40.9 55.2 YoY Growth % 30 18 0 26 22 35 29 13 13 35 CAGR 3 years % 19 15 18 34 25 20 CAGR 5 years % 13 19 NA 24 24 11

Business mix- product wise FY16 FY17 FY18 FY19 FY16 FY17 FY18 FY16 FY17 FY18 FY19 FY16 FY17 FY18

*Total

APE *Total

APE *Total

APE *Total

APE * Total

APE * Total

APE * Total

APE * Total

APE * Total

APE * Total

APE * Total

APE * Total

APE * Total

APE * Total

APE Individual % 97.1 98.4 97.3 95.3 96.0 97.0 96.0 87.3 89.5 92.5 93.7 100.0 89.3 88.4 PAR % 14.1 9.6 10.9 8.6 58.0 54.0 43.0 30.7 16.6 24.4 18.7 30.0 31.2 24.8 Non-PAR % 0.4 1.1 0.5 0.9 9.0 9.0 8.0 1.2 0.7 0.8 0.4 14.0 8.0 8.0 ULIP % 80.8 84.1 81.9 79.6 26.0 30.0 41.0 53.3 70.9 66.5 70.8 56.0 46.4 51.3 Protection % 1.8 3.6 4.0 6.2 3.0 4.0 4.0 2.2 1.2 0.7 3.8 NA 3.6 4.4

Group % 2.9 1.6 2.7 4.7 4.0 3.0 4.0 12.3 10.5 7.5 6.3 NA 10.7 11.6 Savings % 2.0 1.3 1.0 1.6 NA NA NA 4.2 5.5 2.8 3.3 NA 6.5 4.7 Protection % 0.9 0.3 1.7 3.1 4.0 3.0 4.0 8.1 5.1 4.7 3.0 NA 4.2 6.9

Total % 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.6 100.0 100.0 100.0 100.0 100.0 100.0

Channel mix (Overall) FY16 FY17 FY18 FY19 FY16 FY17 FY18 FY16 FY17 FY18 FY19 FY16 FY17 FY18

*Total

APE *Total

APE *Total

APE *Total

APE * Ind

APE * Ind

APE * Ind

APE *NBP *NBP *NBP *NBP * Total NBP

* Total NBP

* Total NBP

Bancassurance % 58.4 57.3 52.3 55.8 68.0 70.0 72.0 60.3 53.0 62.0 64.0 43.0 52.0 48.0 Agency % 24.4 23.8 25.4 21.7 31.0 29.0 27.0 24.9 22.0 25.0 21.0 40.0 32.0 33.0 Direct % 8.6 9.8 13.5 12.0 - - - - - - - 7.0 7.0 10.0 Brokers and others % 8.6 9.1 8.8 10.6 1.0 1.0 1.0 14.8 25.0 13.0 15.0 10.0 9.0 9.0 Total % 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Company financials and disclosures, HDFC sec Inst Research


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Banca channel partners ICICIB and SCB AXIS, YES, LVB SBI, P&SB, SIB, SYB, ALB HDFCB, RBL, IDFCB, BFL AUM FY16 FY17 FY18 FY19 FY16 FY17 FY18 FY16 FY17 FY18 FY19 FY16 FY17 FY18 AUM Rs bn 1,039 1,229 1,395 1,604 358 444 522 798 977 1,163 1,410 742 917 1,066 Equity % 46.8 46.8 47.0 48.0 29.0 24.0 22.0 22.5 23.2 23.0 23.0 39.0 59.0 61.0 Debt % 53.2 53.2 53.0 52.0 71.0 76.0 78.0 77.5 76.8 77.0 77.0 61.0 41.0 39.0 Linked % 72.4 71.5 69.9 NA 37.0 35.0 33.0 55.0 54.0 53.0 49.0 62.0 52.0 57.0 Non-linked % 27.6 28.5 30.1 NA 63.0 65.0 67.0 45.0 46.0 47.0 51.0 38.0 48.0 43.0

Solvency ratio FY16 FY17 FY18 FY19 FY16 FY17 FY18 FY16 FY17 FY18 FY19 FY16 FY17 FY18 Solvency % 320 281 252 215 343 309 275 212 204 206 213 198 192 192

Market Share FY16 FY17 FY18 FY19 FY16 FY17 FY18 FY16 FY17 FY18 FY19 FY16 FY17 FY18 Individual NBP Private Market Share % 20.8 21.7 20.8 17.3 9.9 10.3 9.9 20.8 20.2 20.8 20.4 14.7 13.1 14.7 Individual APE Private Market Share % 21.9 22.3 20.9 17.6 9.3 9.2 9.0 18.8 20.7 21.8 22.3 14.7 12.7 13.3

VNB Margin FY16 FY17 FY18 FY19 FY16 FY17 FY18 FY16 FY17 FY18 FY19 FY16 FY17 FY18 Margin % 8.1 10.1 16.5 17.0 17.9 18.2 20.2 14.3 15.7 18.4 19.8 19.9 22.3 23.2 Persistency FY16 FY17 FY18 FY19 FY16 FY17 FY18 FY16 FY17 FY18 FY19 FY16 FY17 FY18 13th month % 82.4 85.7 87.8 87.4 79.0 80.0 80.0 80.7 81.1 83.0 85.1 78.9 80.9 87.0 25th month % 71.2 73.9 78.8 78.0 67.0 70.0 72.0 73.2 73.9 75.2 76.7 67.4 73.3 77.0 37th month % 61.6 66.8 68.9 71.3 58.0 60.0 62.0 69.2 67.4 70.0 71.4 60.1 63.9 71.0 49th month % 62.2 59.3 63.6 65.2 56.0 55.0 57.0 76.9 62.5 63.9 66.4 63.4 58.3 62.0 61th month % 46.0 56.2 54.8 57.6 43.0 53.0 53.0 53.8 67.2 58.4 57.2 50.1 56.8 51.0

Source: Company financials and disclosures, HDFC sec Inst Research


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Performance metrics, growth and ratios Performance metrics (Rs mn) FY17 FY18 FY19E FY20E FY21E NBP 101,439 109,661 137,920 156,831 179,309 APE 66,028 85,400 96,900 109,801 124,284 VNB* 10,368 15,700 19,186 22,180 25,603 EV* 165,684 201,700 237,300 276,991 322,829 EVOP 28,874 31,300 35,500 42,376 49,093 Rs/share EPS 9.5 11.5 13.3 15.4 18.7 BV 54.6 63.7 74.6 87.4 102.8 DPS 1.3 1.7 2.0 2.2 2.7 Growth (%) Premium Growth 33.1 60.6 30.3 19.8 19.4 Total income growth 58.4 11.5 30.8 18.1 19.2 Commissions Growth 9.7 56.9 20.1 18.6 17.1 Opex Growth 12.9 17.9 23.5 16.1 15.6 Commissions / premium 3.8 4.5 4.1 4.1 4.0 Opex / premium 7.9 6.8 6.5 6.3 6.1 PAT Growth 10.9 33.6 15.3 16.4 21.2 Performance metrics growth (%) NBP 42.7 8.1 25.8 13.7 14.3 APE 35.4 29.3 13.5 13.3 13.2 VNB 48.3 51.4 22.2 15.6 15.4 EV 27.5 21.7 17.7 16.7 16.5 EVOP 313.1 8.4 13.4 19.4 15.9 EPS 10.9 20.5 15.3 16.4 21.2 BV 16.5 16.6 17.0 17.1 17.7 DPS 3.9 33.3 20.0 11.9 21.2 Expense ratios (%) Commissions/premium 3.8 4.5 4.1 4.1 4.0 Opex/premium 7.9 6.8 6.5 6.3 6.1 Total expenses/premium 12.7 12.7 12.3 11.6 11.1 Effeciency ratios (%) RoAA 1.1 1.2 1.0 1.0 1.0 RoE 18.8 20.8 19.2 19.1 19.7 RoEV return 33.2 16.9 18.8 17.9 17.7 Operating RoEV 23.0 18.0 17.6 17.9 17.7 Non-operating RoEV 10.2 (1.0) 1.2 - -


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Ratios on CMP FY17 FY18 FY19E FY20E FY21E P/E (x) 64.4 53.5 46.4 39.8 32.8 P/ABV (x) 11.3 9.6 8.2 7.0 6.0 P/EV (x) 3.7 3.0 2.6 2.2 1.9 P/VNB Multiple (x) 43.3 26.3 19.7 15.2 11.4 P/EVOP (x) 21.3 19.6 17.3 14.5 12.5 P/VIF (x) 6.4 5.3 4.0 3.5 3.1 P/AUM(x) 0.6 0.5 0.8 0.4 0.3 Ratios on TP

P/E (x) 82.2 68.2 59.2 50.8 41.9 P/ABV (x) 14.4 12.3 10.5 9.0 7.6 P/EV (x) 4.7 3.9 3.3 2.8 2.4 P/VNB Multiple (x) 59.7 37.2 28.5 22.9 18.1 P/EVOP (x) 27.2 25.1 22.1 18.5 16.0 P/VIF (x) 8.2 6.8 5.2 4.5 4.0 P/AUM(x) 0.8 0.7 1.0 0.5 0.4 * Adjusted for change in effective tax rate Source: Company financials and disclosures, HDFC sec Inst Research


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Policyholder’s Account (Rs mn) FY17 FY18 FY19E FY20E FY21E Total premium earned 208,525 251,601 327,750 392,777 468,951 Income from investments and other income 93,624 85,248 112,719 128,183 152,052

Transfer from shareholders account 627 756 989 500 500

Total income 302,775 337,605 441,458 521,461 621,503 Commission 7,833 11,209 13,464 15,966 18,703 Operating expenses 16,465 17,188 21,235 24,657 28,495 Provisions 2,226 3,527 5,505 4,772 5,011 Total expenses 26,525 31,924 40,203 45,395 52,209 Benefits paid 95,502 117,123 152,938 164,330 201,990 Change in valuation of liabilities 172,410 175,950 235,917 292,940 344,653

Total 267,912 293,073 388,855 457,270 546,643 Surplus 8,339 12,609 12,400 18,796 22,651 Tax 1,798 2,380 2,687 4,073 4,908 Net surplus 6,541 10,229 9,713 14,723 17,742

Source: Company, HDFC sec Inst Research Shareholder’s Account (Rs mn) FY17 FY18 FY19E FY20E FY21E Transfer from policyholders' a/c 6,546 8,294 9,985 11,532 13,898

Investment income 4,016 4,521 5,057 5,723 6,849 Other income 82 113 135 - - Total income 10,644 12,928 15,177 17,256 20,747 Expenses 271 327 459 498 539 Contribution to policyholders' a/c 627 756 989 500 500

Profit before tax 9,746 11,845 13,729 16,258 19,707 Taxes 199 341 461 813 985 PAT 9,547 11,504 13,268 15,445 18,722


Balance Sheet (Rs mn) FY17 FY18 FY19E FY20E FY21E Sources of funds Share capital 10,000 10,000 10,000 10,000 10,000 Reserve and surplus 44,648 53,745 64,601 77,361 92,828 Net worth 54,648 63,745 74,601 87,361 102,828 Credit/debit balance in fair value a/c 873 1,534 1,162 1,162 1,162

Policyholders' a/c 936,732 1,114,345 1,351,399 1,644,338 1,988,991 Funds for future appropriation - 1,935 2,816 2,957 3,105 Total Liabilities 992,252 1,181,558 1,429,978 1,735,819 2,096,087 Application of funds Shareholders' Investments 42,955 50,144 57,232 68,488 82,381 Policyholders' investments 469,617 544,857 644,724 - - Asset to cover linked liabilities 445,730 549,359 691,291 1,628,954 1,973,607 Loans 1,782 1,709 1,725 1,768 1,812 Fixed assets + DTA 5,385 5,813 5,952 6,101 6,254 Net current assets 26,783 29,677 29,054 30,507 32,032 Debit balance in P&L - - - - - Total Assets 992,252 1,181,558 1,429,978 1,735,819 2,096,087



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RECOMMENDATION HISTORY

Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target 10-Apr-18 693 BUY 840 27-Apr-18 762 BUY 810 6-Jul-18 665 BUY 870

27-Jul-18 673 BUY 846 9-Oct-18 513 BUY 700

22-Oct-18 564 BUY 735 8-Jan-19 605 BUY 735

19-Jan-19 620 BUY 750 9-Apr-19 620 BUY 776

26-Apr-19 614 BUY 785

500

550

600

650

700

750

800

850

900

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Oct

-18

Nov

-18

Dec-

18

Jan-

19

Feb-

19

Mar

-19

Apr-

19

SBI LIFE TP


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Disclosure: We, Madhukar Ladha, CFA & Keshav Binani, CA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock –No HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. 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No.: INH000002475, CIN - U67120MH2000PLC152193 Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.

mailto:[email protected]


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BUY Strong execution continues · SBI Life Insurance. BUY . HDFC securities Institutional Research is also available on Bloomberg HSLB & Thomson Reuters . Strong execution