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Healthy premium growth; outlook optimistic…

About the stock: SBI Life (SBIL) is among most dominant players in the Indian life insurance industry with strong distribution network, parentage, operating metrics.

* Balanced product mix with focus on opex ratio ahead of industry

* Strong parentage led distribution remains key catalyst

Q3FY22 Results: Healthy business traction, outlook optimistic.

* Gross premium growth healthy at 31% YoY; NBP growth at 56% YoY

* VNB margins healthy at 21.9%, aided by product mix and rise in pricing

* PAT at | 236 crore, aided by healthy premium accretion

* Net Covid claim at | 1530 crore for 9MFY22; Covid reserve at | 270 crore

What should investors do? SBIL’s share price has grown by ~1.7x over the past four years (from ~| 700 in October 2017 to ~| 1214 levels in January 2022).

* Factoring in distribution strength & diversified product mix, we retain our BUY rating on the stock

Target Price & Valuation: We value SBIL at 2.8x FY24 EV with revised TP of | 1400.

Key triggers for future price performance:

* Launch of non-par & protection product to aid overall growth and VNB

* Product mix & improvement in persistency to aid VNB margins at 21-22%

* Covid claim seen to moderate; reserves at | 270 crore seem comfortable

* Strong distribution network remains core to maintain business momentum

Alternate Stock Idea: Apart from SBIL, in our coverage we also like HDFC Life.

* Dominant player in life insurance industry with huge growth potential coupled with strong distribution, product suite and best VNB margin

* BUY with a target price of | 800

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