Buy SBI Life Insurance; target of Rs 870: ICICI Direct

ICICI Direct's research report on SBI Life Insurance

Premium growth continued to remain healthy at 21% YoY to Rs 25350 crore in FY18 (Rs 9237 crore in Q4FY18), led by 30% YoY growth in individual new business and 31% YoY in renewals. Protection business witnessed improved traction at 23% YoY to Rs 600 crore forming 5% of NBP. AUM growth is healthy at 18.9% YoY to Rs116262 crore.  Opex grew 19.8% YoY to Rs 860 crore. Higher top-line growth led to improvement in opex ratio to 9.3% in Q4FY18 vs 9.8% in Q4FY17. Unlike peers, SBILIF continue to build normal tax rate of ~15.5% for calculating EV. Adopting effective tax in future for calculating EV will be margin accretive and offer further upside than estimated.

Outlook

SBI Life has maintained growth trajectory in last three years along with focus on profitability. We expect ~23% CAGR in EV in FY18-20E to Rs 28858 crore, driven by 28.5% CAGR in VNB to Rs 2199 crore in FY20E. Operating RoEV is seen at ~20% by FY20E. Given strong distribution network and continued control of cost, we remain positive on the fundamental strength. Therefore, we revise our target price upwards at Rs 870 (3x FY20E EV) valuing the stock on an appraisal basis (EV + structural value) with 1.5x FY20E EV + 20x FY20E VNB. Maintain BUY rating.