SBI Life Insurance: Valuations Reasonable, 22% Upside Likely

Broking firm, Motilal Oswal has said in its latest report that SBI Life Insurance protection trends remain robust, its cost leadership continues and valuations remain reasonable. The firm sees an upside of nearly 22% on the stock.

According to Motilal Oswal Institutional Equities SBI Life posted a rebound in business premium with individual APE growing at 14% YoY in Oct'20 after reporting a consecutive decline for the past many months.

"During 2QFY21, the Unit Linked Insurance business declined 13% YoY but grew 166% QoQ from the troughs seen earlier. Protection growth remains robust both in individual and group segments and is expected it to remain strong. The revival in credit growth, with parent State Bank of India indicating that the retail disbursement run-rate is now higher than pre-COVID levels, further augurs well for SBI LIFE.

The company reported an improvement in persistency rate across cohorts, with the highest improvement seen in the 61st month (up 340bp YoY to 61% in 1HFY21). Persistency in the Protection business remains strong. The ULIP business is showing signs of a recovery on improved capital market performance," the broking firm stated.

According to Motilal Oswal Institutional equities growth in new business premium (un-weighted) outperformed the industry and peers, which SBI LIFE grew 15% YoY over FY21 YTD (v/s 3.1% for the industry and 12.4% for HDFC LIFE and 10.5% decline for IPRU). Also, Sum assured growth trends remains robust for both IPRU and SBI LIFE, which suggests improving trends in the Protection segment.

"SBI Life is also looking to optimize its product mix in the Protection/Annuity business. This should help VNB margin to further expand to 22% by FY23E, which should drive 19% CAGR in VNB over FY20-23E. We expect operating RoEV to remain steady ~18%, while EV clocks 17% compounded annual growth rate over FY20-23E. Maintain Buy with a target price of Rs 1,050 per share (2.7x Sep'22E EV)," the broking firm has stated.