Buy SBI Life Insurance Ltd For Target Rs.1360 - ICICI Direct
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Steady premium growth; elevated claims impact PAT
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
Q2FY22 Results: Steady business traction, outlook on claims optimistic.
* Gross premium growth steady at 14% YoY; NBP growth at 17% YoY
* VNB margins healthy at 21.8%, aided by product mix and rise in pricing
* Surplus up 1.3x QoQ to | 256 crore, led by higher investment income
* Net Covid claim at | 1338 crore for H1FY22; Covid reserve at | 266 crore
What should investors do? SBIL’s share price has grown by ~1.6x over the past four years (from ~| 700 in October 2017 to ~| 1180 levels in October 2021).
* Factoring distribution strength & diversified product mix, we retain our BUY rating on the stock
Target Price & Valuation: We value SBIL at 3.2x FY23 EV with revised TP of | 1360
Key triggers for future price performance:
* Launch of non-par and protection product to aid overall growth and VNB
* Covid claim seen to moderate; reserves at | 266 crore seems comfortable
* Strong distribution network remains core to maintain business momentum
* Product mix & improvement in persistency to aid VNB margins at 21-22%
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 | 850
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