ICICI Direct is bullish on SBI Life Insurance has recommended buy rating on the stock with a target price of Rs 745 in its research report dated October 22, 2018.
ICICI Direct's research report on SBI Life Insurance
Robust growth in premium continued at 40% YoY to Rs 7622 crore, led by 40% YoY growth in new business and 41% YoY in renewals. Traction in individual business remained at ~13.9% YoY to Rs 2409 crore, while group business witnessed higher growth at 4x YoY to Rs 1294 crore. Protection business (individual+group) witnessed robust traction of 171% YoY to Rs 380 crore; ~10.5% of NBP. Such higher growth in segments led to 40% YoY growth in NBP to Rs 3497 crore On APE (annualised premium equivalent) basis, NBP APE increased 15.3% YoY to Rs 2404 crore, led by higher growth in renewal and single premium. Individual APE growth remained healthy at 9.6% YoY to Rs 2080 crore, while group APE rose sharply to Rs 323 crore. Total protection NBP as a proportion of total NBP rose to 10.9% in Q2FY19 from 10.1% from Q1FY19 and 5.6% in Q2FY18 Actuarial liabilities increased 41% YoY to Rs 5592 crore, while benefit paid grew 3.7% YoY to Rs 2768 crore. This has led to policyholder surplus holding at Rs 289 crore vs Rs 285 crore in Q2FY18. With lower allocation to policyholder account, PAT came at Rs 251 AUM growth was healthy at 20% YoY to Rs 126170 crore. Investment income remained subdued at Rs 1975 crore as per market conditions.
Outlook
SBI Life has maintained its growth trajectory in the last three years along with focus on profitability. We expect ~21% CAGR in EV in FY18-20E to Rs 27864 crore, driven by 25.4% CAGR in VNB to Rs 2186 crore in FY20E. A strong distribution network, cost control and focus on high margin protection business may result in healthy operating RoEV at ~18% in FY20E. Slower APE growth and higher volatility in market impacting business remain near term concerns. Factoring in the same, we revise our target multiple at 2.7x FY20 EV (1.5x FY20E EV + 15x FY20E VNB) and arrive at a target price of Rs 745 (earlier Rs 870). Citing the recent correction in the stock, we maintain our BUY rating.
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