Buy SBI Life Insurance Ltd For Target Rs.1,000 - ICICI Direct
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Business gains traction, margins to improve
SBI Life Insurance reported a mixed performance wherein premium accretion was healthy but higher actuarial liability offset investment income, led to lower than expected surplus and earnings.
Premium growth remained healthy at 18% YoY to | 13766 crore, led by higher traction in renewal (up 24% YoY) and single premium (up 16.5% YoY). New Business Premium (NBP) witnessed moderation in growth at 9.5% YoY to | 5439 crore, led by flattish group business. Protection business (individual + group) continued to report strong growth at | 710 crore in Q3FY21 vs | 510 crore in Q3FY20. Proportion of total protection NBP to total NBP stood at ~13% in Q3FY21. Group savings products business remained flat YoY at | 1030 crore.
Continued focus on product mix to aid VNB margin
Pandemic has led to surge in demand for protection business; the same is expected to stabilize ahead. Post sluggish business in 1HFY21, credit life business is set to increase as disbursement pick up ahead. Apart from protection, the insurer plans to focus equally on distribution of participating and non-participating (including annuity) products. Going ahead, proportion of protection and non-unit linked business is expected to increase leading to healthy VNB margin ahead of 18%. Thus, overall premium accretion is seen at 13.8% CAGR in FY21-23E to | 59370 crore, while VNB margin is seen to remain of 18% in FY21-23E.
Valuation & Outlook
Gradual tilt towards high yield products including protection and non-par products is seen to aid premium growth as well VNB margins. Strong distribution (banca as well as agency) channel to enable pedal business growth with limited traction on opex. Such operationally efficiency and steady persistency is expected to further aid profitability. We continue to remain positive on businesses with long term growth potential and relatively lower balance sheet risk. Rolling our valuation on FY23E estimates, we maintain our target at | 1000 per share, valuing the stock at ~2.6x FY23E EV. Maintain Buy rating
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