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SBI Life Insurance Company Ltd>
  • CMP : 1,440.6 Chg : -2.65 (-0.18%)
  • Target : 1,350.0 (18.42%)
  • Target Period : 12-18 Month

28 Apr 2023

Balanced growth to drive VNB growth ahead

About The Stock

SBI Life (SBIL) is among the 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
Q4FY23

Premium accretion slower than expected

  • Gross premium growth slower at 14% YoY; NBP growth up 21%, led by tax amendment
  • VNB margins steady at 30.1%, aided by balanced product mix
  • Surplus at ₹ 1942 crore; focus on cost and decline in claims led PAT growth at 16% YoY to ₹ 777 crore
  • AUM growth decent at 16% YoY to ₹ 307340 crore
What should Investors do?

SBIL’s share price has grown ~45% in the past three years. Lower proportion of high ticket business, strong distribution and diversified product mix along with lowest cost on relative basis is seen aiding business growth as well VNB margin. The stock is reasonably priced and is currently trading at 1.9x FY25E embedded value.

  • We retain our BUY rating on the stock
Target Price and Valuation

We broadly maintain our EV estimates for FY24-25E. We upgrade out target price for SBIL from ₹ 1300 to ₹ 1350, valuing the stock at 2.2x FY25E EV.

Key Triggers for future price performance
  • Recent amendment in taxation is not seen having a substantial impact on growth momentum. Continued traction anticipated in non-par business. Focus on annuity and protection segment to further aid growth
  • Continued distribution moat in terms of banca partnership (with parent), new digital, banca partnerships and strong agency force to aid business growth
  • Continue to deliver cost efficiency. Any increase in commission (new EOM guidelines) is not seen having any substantial impact on VNB trajectory
Alternate Stock

Apart from SBIL, in our coverage we also like Star Health.

  • Market leader in retail health insurance segment (~33% market share) with potential for sustained business growth and, thus, earnings trajectory
  • BUY with a target price of ₹ 650

Key Financial Summary

Particulars FY20 FY21 FY22 FY23 3 Year CAGR(FY20-FY23) FY24E FY25E 2 Year CAGR (FY23-FY25E)
ADTO (| crore) 20,070.0 29,590.0 78,753.0 154,066.4 97.3 203,800.2 234,370.2 23.3
Market Share (%) 1.4 1.1 1.1 1.1 -6.6 1.2 1.2 0.9
Revenue from operation (| crore) 717.5 790.9 1,232.3 1,352.0 23.5 1,371.5 1,473.4 4.4
Net Profit (| crore) 232.1 220.3 305.8 249.7 2.5 242.3 276.9 5.3
EPS (|) 7.3 7.3 10.1 8.2 - 7.9 9.1 -
P/E (x) 8.0 8.0 5.8 7.1 - 7.4 6.4 -
RoE (%) 28.8 23.9 28.5 19.7 - 16.5 16.0 -
Source: Company, ICICI Direct Research

Variance Table

  Q4FY23 Q4FY23E Q4FY22 YoY (%) Q3FY23 QoQ (%)   Comments
First Year Premium 4,089.6 3,857.0 3,853.6 6.1 5,055.2 -19.1   Uptick in Q4FY23 premium led by tax amendment
Renewal Premium 11,937.0 12,491.7 10,842.5 10.1 10,908.3 9.4   Persistency remain steady
Single Premium 3,986.9 3,949.5 2,812.4 41.8 3,368.4 18.4    
Net Premium income 19,897 19,518 17,434 14.1 19,171 3.8    
Income from Investments 1,186.1 7,389.0 2,999.5 -60.5 7,443.0 -84.1    
Total revenue 22,805.4 26,926 21,427.9 6.4 26,626.7 -14.4    
                 
Commission 871.4 917.3 677.9 28.6 845.2 3.1   Commission ratio up ~50 bps YoY to 4.4%
Operating expenses 1,001.8 1,014.9 872.5 14.8 913.9 9.6   Opex ratio steady at 5%
Management Expenses 1,873.2 1,932.2 1,550.4 20.8 1,759.1 6.5    
Benefits paid 9,123.2 8,392.5 7,373.4 23.7 8,355.9 9.2    
Change in Actuarial Liability 9,604.3 14,793.7 10,892.1 -11.8 15,937.5 -39.7    
Total Expenses 20,863.6 25,389.9 20,122.6 3.7 26,330.3 -20.8    
                 
Surplus/ (deficit) 1,941.8 1,536.6 1,305.3 48.8 296.4 555.1   Healthy premium and lower actuarial liabilities led to higher surplus
Transfer to SHs A/c 2,302.8 1,600.0 1,471.2 56.5 113.8 1,923.7    
                 
Transfer to SHs A/c 2,302.8 1,600.0 1,471.2 56.5 113.8 1,923.7    
Investment income 212.5 212.2 238.2 -10.8 203.0 4.7    
Profit/ (loss) before tax 793.6 813.1 694.1 14.3 310.8 155.3    
PAT 776.9 756.1 672.2 15.6 304.1 155.4    

 

Q4FY23 earnings conference call highlights

  • SBI Life has maintained its leadership position in terms of number of policies. Individual new business sum assured grew 13% YoY vs. 12% growth of industry
  • Non par guaranteed products registered robust growth of 116% YoY driven by business contribution of Smart Platina Plus product. Individual annuity business grew 134% YoY led by new business contribution of Smart Annuity Plus product
  • During the quarter, Banca channel contributed 63% to Individual APE and non SBI banca partners (like Indian bank, Uco Bank, South Indian Bank, Yes Bank, Punjab & Sind Bank) had contributed ~3% to individual NBP. SBI Life has also signed corporate agency agreement with Karur Vysya Bank
  • With healthy growth and change in product mix, the management expects to maintain healthy and sustainable VNB growth. APE growth guidance for FY24 continues to be in the range of 20-25% YoY. Margins are expected to remain in a similar range (~29-30%)
  • In the last two to three years, product mix is moving towards the non-par business and yield curve is going up. Continue to focus on protection business. Ulip is also expected to witness strong growth in FY24E
  • Credit life share in terms of APE was at | 2000 crore in FY23 vs. | 1700 crore in FY22

Disclaimer

ANALYST CERTIFICATION

 

I/We, Kajal Gandhi, CA, Vishal Narnolia, MBA, and Pravin Mule, MBA, M.com. Analysts Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.                      

 

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