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Our Take:

Indian life insurance space provides a multi decadal growth story. Despite healthy growth in past 20 years CAGR of 17% between FY01- FY18, it is still at a nascent stage. It is still under penetrated (Premium as % of GDP for 2020 stood at 3.2%) as compared to other emerging countries; protection gap at 83% is also highest amongst peers. India’s favourable demographics like high share of working population, rapid urbanization, rising affluence and focus on financial inclusion provide huge growth opportunities. SBI Life is uniquely positioned to tap the vast potential in India’s life insurance sector by harnessing the SBI Group’s large distribution footprint (24,000+ branches).

Vast distribution network supported by strong, agile & analytics driven technology platform is one of the key differentiators for SBI Life. The scale of multichannel distribution platforms enables wider presence. Since FY10 SBI Life has been among the leader in terms of new business premium generated. It has one of the best expense ratio, persistence during the last quarter has shown improvement. Further, it has been well managed to tackle COVID claims.

Valuation & Recommendation:

Even during the weak economic scenario, the company has reported decent numbers in Q1FY22. In our view, SBIL deserves premium valuation given diversified product mix, strong distribution and focus on improving persistency. We have estimated SBI life to deliver CAGR of 20% for Value of New Business (VNB), 16% New Business Premium (NBP) and 16% for Embedded Value (EV) over FY21 to FY23E. The company is trading at 2.5x FY23 Embedded Value, which is at sharp discount to its peer HDFC Life. Given the high growth environment we believe that Indian life insurance companies will be keep on getting higher multiples. SBI Life offers quality at attractive valuations due to its best-in-class cost ratio, improving persistency and strong premium growth that ensures continuity in sound operating performance. Its margin has expanded in FY22 but it still lags peers and therefore has a high room for improvement over the next two years.

We believe that investors can BUY SBI Life at LTP of Rs.1168 (2.48xFY23E EV)and add on dips to Rs.1059 band (2.25xFY23E EV) for Base case fair value of Rs.1295 (2.75xFY23E EV) and the Bull case fair value of Rs.1370 (2.9xFY23E EV) over next 6 months.

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