SBI Life Insurance is among the top Nifty 50 stocks with maximum optimism, or the highest share of ‘buy’ calls among its coverage universe, according to Moneycontrol’s analyst call tracker. Brokerages are optimistic on the company due to healthy premium growth, price competitiveness, low cost ratios and superior agency strength.
In the last 6 months, shares of SBI Life have gained over 10 percent, compared to a fall in the share price of peers such as HDFC Life Insurance and ICICI Prudential Life. SBI Life stock has 32 ‘buy’ calls out of 34 analyst ratings.
SBI Life is Emkay Global Financial Services’ top pick among insurance companies due to lower dependency on non-par savings and lowest-cost business model. In an earlier report, Emkay said the management is confident of meeting a 20 percent Annual Premium Equivalent (APE) growth and 28-30 percent Value of New Business (VNB) margin guidance for FY24 on the back of strong brand and distribution network, low-cost advantage and a simple business strategy.
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Healthy business growth, high profitability
SBI Life has seen healthy business growth of late. In H1FY24, APE increased by 20.9 percent year on year (YoY) to Rs 5,230 crore. In Q2, APE growth was 34 percent. This growth was powered by the Unit Linked Insurance Plan (ULIP) and group protection segment, said brokerage KR Choksey.
The growth in ULIP was due to the exuberance in the stock market as ULIP APE increased by 50.2 percent YoY in Q2. The group protection APE rose by 113 percent from the previous year. The Gross Written Premium (GWP) of the company grew 21.4 percent YoY.
KR Choksey added that PAT for the company is expected to grow at 14.5 percent CAGR over FY23-25E, through which the company will also maintain its cost leadership. They also pointed out that the company may have GWP growth of 17 percent CAGR over FY23-FY25E.
SBI Life’s low-cost advantage
Axis Securities said that the management is looking to focus more on non-participating (NPAR) policy and protection products. SBI Life wants a portfolio mix of 55:45 of ULIP and non-ULIP products. An increase in NPAR products will improve the margins for the company. In Q2, the company’s margins declined marginally from 28.8 percent to 28.6 percent quarter on quarter due to an increase in ULIP products. KR Choksey analysts wrote that the company is looking to improve growth in the NPAR segment by adding new products.
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Axis Securities said the company enjoys competitive cost ratios in the industry that help it to maintain “superior margin profile”. Furthermore, Axis Securities pointed out that the company has a cost ratio of 10 percent, which is one of the best in the industry.
Network effect rubbing off on SBI LifeICICI Securities said that the company added 16,000 agents in Q2, making the total agent count 236,978, increasing its reach of the products. The company also increased productivity from Rs 1.6 lakh per agent in Q1FY24 to Rs 2.1 lakh per agent in Q2FY24. Total Agency Business growth in H1FY24 was 23.6 percent for SBI Life, beating competitors like HDFC Life and ICICI Prudential Life’s 9.3 percent and 4.2 percent growth, ICICI Securities added. KR Choksey wrote the new business premium growth in the agency segment grew 32 percent YoY and contributed 19 percent to the new business premium.
Nuvama Institutional Equities said the company’s parent State Bank of India with 23,000 branches and a strong bancassurance channel along with its strong agency force is a growth vector for the company.
Axis Securities gave a ‘buy’ call with a target price of Rs 1,535, valuing at 2.3x FY25EV, indicating a 7 percent upside from the current levels. KR Choksey applied a 2.5x P/EV on FY25E EVPS of Rs 653.2 and a VNB multiple of 15x and gave a weighted average target price of Rs 1,630 with a ‘buy’ rating.
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ICICI Securities also gave a ‘buy’ rating, valued at 2.5x FY25E EV and a target price of Rs 1,650, a 15.35 percent upside. “Given strong guidance and better-than-expected performance, mainly driven by higher group business, we retain our estimates and TP of Rs 1,600. Maintain ‘buy’,” Nuvama wrote in its report.
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