SBI Life insurance Rating ‘Buy’; Momentum is expected to be sustained

By: |
September 28, 2021 2:00 AM

Margin outlook remains positive; VNB estimates up 7-9%; target price raised to Rs 1,380 from Rs 1,240; ‘Buy’ maintained

While wave-3 is yet to become concerning, mgmt remains watchful of any claims spike from delta variant induced wave-3.

In our interaction, mgmt sounded optimistic on growth with rising share of protect & non par likely to aid margin expansion. Proactive vaccination and digital enablement of sales force is helping growth. Lagged wave-2 claims are tracking co. estimates and June’21 Covid reserves seem adequate, but mgmt is watchful of wave-3. Not much repricing pressure from reinsurers currently. We lift VNB est. by 7-9% and raise TP to Rs 1,380 (vs Rs 1,240) on 2.9x June-23EV. Buy.

Strong growth momentum expected to sustain: Mgmt sounded sanguine on premium growth for the year. July-Aug growth has been very strong at 30%-70% while Sept. is also tracking well. Growth is driven both by savings and protection. SBIL’s efforts to proactively vaccinate employees/agency force and facilitating digital tools is yielding results. SBI remains a key growth driver across products; non-SBI partners (such as SIB, PSB, UCO) are posting very high growth on a low base. Currently, these banca tie-ups form ~2-2.5% of NBP mix; SBIL expects its share to move up to ~8% over the next 3-4 years.

Focus on protection to rise further: SBIL has posted strong growth in protection (43% in FY21 and 76% in Q1FY22). SBIL has been traditionally RoP heavy in protect with ~85:15 mix for RoP:non RoP. Pure term product launched this quarter will help diversify its offering and further increase share of protection in product mix – mgmt intends to take protection share to ~14-15% of NBP vs. ~12% in FY21. Credit Life is also seeing strong traction due to higher disbursal rate at SBI – attachment rates have moved up here from ~45% to 47%. On group term, however, the company maintains a cautious approach.

Market conditions helping savings products growth: Favourable capital market conditions are supporting growth in ULIPs. SBIL saw y-o-y decline in guarantees in Q1FY22, but with repricing of rates it has started to push for growth in guarantees again. Annuities is a focus area growing strongly in individual segment. Mgmt targets to take share of non par savings to ~14-15% over next few years with share of ULIP likely to ease lower.

Reinsurance: SBIL has not faced much repricing pressure from reinsurers owing to somewhat different product construct. RoP products have much lower sum assured which moderates need for medicals. Moreover, SBIL’s term pricing has been more broad based. In recent discussions, too, SBIL is not seeing indications from reinsurers to hike term prices – lower ceding rate also likely helping.

Lagged Covid wave-2 claims in line with reserving: Mgmt does not see material risk of overshoot on its June-21 Covid reserves of Rs 4.4 bn. While wave-3 is yet to become concerning, mgmt remains watchful of any claims spike from delta variant induced wave-3.

Buy stays: We maintain Buy and raise PT to Rs 1,380 (from Rs 1,240) driven by better growth (FY22 APE growth est. at 23%) and margin assumption (lifting VNB est. by 7%-9%) and higher multiple of 2.9x on June-23 EV. We build in VNB CAGR of 24% over FY21-24e. Stock trades at 2.6x FY23e EV for an op RoEV of 17%.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Rakesh Jhunjhunwala buys more Titan shares first time since December 2019, hikes SAIL stake
2No major up move in Gold next week, may underperform Silver in short term; charts show bullish trend in Silver
3SGX Nifty up, Q2 results, stocks under F&O ban, Nifty, Bank Nifty view: key things to watch out for