Buy SBI Life Insurance Company; target of Rs 1,978: ICICI Securities

ICICI Securitie's research report on SBI Life Insurance Company

We factor in VNB margin of 28% and model 18% APE growth, in FY25/26E. This results in EV of INR 824bn with core RoEV of 19.3% in FY26E. We value the stock based on 2.4x FY26E EV per share to arrive at our TP of INR 1,978 (from INR 1,795). The increase in multiple is based on industry leading RoEV performance, low impact of increase in surrender value and low impact of tax exemption on insurance premiums and income (every year there is incremental push by the government to move to new tax regime devoid of any exemption). Strength in cost structure and distribution remain key business moats while focus on improving product mix could increase VNB growth in H2FY25. It has also voluntarily introduced an internal ombudsman to monitor claim settlement and mis-selling which should boost policyholder confidence.

Outlook

We remain constructive on SBI Life Insurance (SBLI) basis strength in its distribution and cost structure. While these business moats remain extremely relevant, the wide customer base also makes SBLI least vulnerable to regulatory changes in terms of lower tax exemptions or higher surrender value. This along with the track record of delivering core RoeV of 20% or more for the last five years makes it one of the better candidates for multiple rerating. Near-term levers include margin-accretive product launches in retail protection and improved traction in SBI digital channel (YONO). Maintain BUY. Key risks: Any adverse change in distribution and cost equations under open architecture regime.