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VNB Margins Expansion Led By Product Mix Shift, Focus on Agency Channel Continues Est. Vs. Actual for Q1FY26: NBP – MISS; APE – INLINE; VNB/VNB Margins (%) – MISS Changes in Estimates post Q1FY26 FY26E/FY27E (in %): NBP -9.2/-9.1; APE -2.8/-4.7; VNB -2.3/-5.4

Recommendation Rationale

• Focus on Improving Branch Partner Distribution: Despite the growth in the agency channel being a tad muted in Q1, the management remains confident of delivering a strong performance over the rest of FY26. The management has retained its guidance for a strong ~25% growth through the agency channel in FY26. The banca channel saw an uptick in Jun’25 vs AprMat’25, with the company having mobilised field officers. The management is confident of strong growth in the coming quarters. The banca channel growth is expected at 10% in FY26. SBILIFE will look to drive higher branch activation from its partner banks. Currently, the company works with 14,000+ partner banks, with a monthly active rate of 10-20%. Over the medium term, the company intends to drive higher growth from this segment, driven by improved branch activation.

• VNB Margins to Remain Range-Bound: In Q1FY26, VNB margins of 27.4% were aided by a shift towards higher margin products, with strong growth in the non-PAR, Protection and PAR business along with improved rider rates. The company has launched a protection product, and the repricing of non-PAR products supported margins. The management indicated that the SBILIFE will look to further extend rider products to existing customers. Currently, rider attachment is offered only to new customers. Hereon, focus continues to remain on higher growth in profitable products and maintaining a balanced product mix. The management has continued to guide APE growth of mid-teens, led by non-PAR products and new launches in the protection business. VNB margins are likely to be maintained between 26-28%.

• Persistency Trends: SBILIFE has witnessed a healthy improvement in the 13th/61st Month Persistency ratio, which stood at 87.1/62.8% vs 86.5/61.9% YoY. However, the company has been facing challenges from a certain cohort which has been underperforming, driving lower 49th-month persistency. The management indicated that SBILIFE is likely to see a drop in the 61st-month persistency ratio in the upcoming period, owing to this cohort.

• Opex Ratios to Remain Range-bound: SBILIFE added 36 branches during the quarter and continued to invest in the digital infrastructure and strengthen its employee count. Despite these investments, the Opex ratio inched up only marginally, 6.3% vs 6.1% YoY. The management remains confident that despite investments towards branch and tech infrastructure, Opex ratios are likely to remain range-bound between 6-6.5% in FY26.

Sector Outlook: Positive

Company Guidance and Outlook: The management has guided for individual APE growth of ~13-14% for FY26. VNB Margins are expected to remain range-bound between 26-28% and move with a positive bias, supported by product mix shift towards non-PAR and new launches in the protection business. Focus on the agency channel continues to remain unabated, and the company will hereon look at improving the activation of partner bank branches to drive healthy growth. We expect SBILIFE to deliver a healthy 15/13/12% CAGR NBP/APE/VNB growth over FY25-28E. Current Valuation: 2.25x FY27E EV Earlier Valuation: 2.1x FY27E EV Current TP: Rs 2,150/share. Earlier TP: Rs 1,900/share Recommendation: We maintain our BUY recommendation on the stock

Financial Performance

• In Q1FY26, SBILIFE’s NBP grew by 2/-22% YoY/QoQ. Gross Premium (GWP) stood at Rs 178.1 Bn, largely in line with our expectations, registering a 14% YoY growth. GWP growth was driven by 12/24% YoY growth in the First year/Renewal premiums, respectively. Commission ratio stood at 3.9% vs 4.6% in Q1FY25. Total opex ratio was steady at 10.2% vs 10.7% YoY.

• APE grew by 9% YoY. VNB stood at Rs 10.9 Bn during the quarter, with VNB Margin at 27.4% vs 26.8% YoY. Improvement in VNB margin was driven by product mix shift towards non-linked products. EV stood at Rs 742.6 Bn (+20% YoY).

• In Q1FY26, the APE channel mix for bancassurance channel was 58%, agency channel at 27% & other channels at 15%. The agency channel growth was flat, owing to the high base effect. SBILIFE added 31,000 agents on a gross basis during the quarter, with unabated focus on productivity improvement.

Valuation & Recommendation:

We value SBILIFE at 2.25x FY27E EV vs its current valuations of 1.9x FY27E EV, to arrive at a target price of Rs 2,150/share. This implies an upside of 17% from the CMP. We recommend a BUY on the stock.

Key Risks to Our Estimates and TP

• Slowdown in APE growth or an unfavourable change in the product mix could impact VNB margins and resultantly our estimates

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