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Steady growth amid lockdown; Covid claims elevated

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

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

* Strong parentage led distribution remain key catalyst.

Q1FY22 Results: Business traction healthy, claims rise amid pandemic.

* Gross premium growth steady at 10% YoY to | 8313 crore

* VNB margins healthy at 21.2%, aided by traction in protection & annuity business

* Surplus declined 82% YoY to | 111 crore, led by higher Covid claims

* Covid claims (net) at | 572 crore; additional Covid reserve at | 445 crore

What should investors do?

SBIL’s share price has grown by ~0.5x over the past four years (from ~| 700 in October 2017 to ~| 1077 levels in July 2021).

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

Target Price & Valuation: We value SBIL at 3.1x FY23 EV with revised TP of | 1250.

Key triggers for future price performance:

* Focus on non-par and annuity products to aid overall growth and VNB

* Strong distribution network remains core to maintain business momentum

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

* Higher Covid claim remains a near term overhang; reserves at | 445 crore

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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