SBI Life climbs 4% as brokerages raise price target after Q4 earnings

SBI Life Insurance Company shares rallied 4.6 percent in the morning trade on April 26 as brokerage houses raised price target on the stock after March quarter earnings.

The stock was quoting at Rs 637.85, up Rs 22.90, or 3.72 percent on the BSE, at 1036 hours IST.

SBI Life Insurance's March quarter profit grew by 20 percent to Rs 457.68 crore and total income also increased a whopping 55 percent to Rs 15,600.97 crore in Q4 YoY.

For the financial year 2018-19, SBI subsidiary reported net profit at Rs 1,326.80 crore, registering a growth of 15.4 percent over the previous year.

The value of new business (VNB) for FY19 stood at Rs 1,720 crore, up by 24 percent over the previous fiscal.

VNB is used to measure the profitability of the new business written in a period. It is present value of all future profits to shareholders measured at the time of writing of the new business contract.

Brokerages remained positive on the stock and raised their price targets after solid earnings growth in Q4.

Brokerage: Emkay | Rating: Buy | Target: Rs 830 | Return: 35%

SBI Life Insurance Company (SBIL) reported gross written premium (GWP) of Rs 11,370 crore (+22.5 percent YoY, +24.1 percent QoQ), almost in line with our estimate, supported by annualized premium equivalent (APE) growth of 16.8 percent  YoY to Rs 3,040 crore.

Value of new business (VNB) margin was 17.7 percent (at gross-tax), 10bps below Emkay estimates (+150bps YoY and +20bps YTD). Product mix boosted margins 300bps YoY, while assumption change and other negative variance impacted margin by 150bps YoY.

Persistency (excluding single premium) expanded for all major cohorts with 13th month persistency up by 263bps YoY to 83.9 percent, and 49th month persistency up by 125bps YoY to 60.3 percent. Sequentially, FY19 over 9M19 saw 13th month persistency picking up 190bps.

In order to expand margins, SBIL is looking at diversifying the product mix with segments such as immediate annuity and non-par guaranteed product. We reaffirm positive view on the stock and maintain buy rating with a target of Rs 830 at 2.7x FY21E EV.

Brokerage: Jefferies | Rating: Buy | Target: Rs 745 | Return: 21 percent

We have a buy rating on the stock and have raised target price to Rs 745 from Rs 728 apiece, factoring in stronger business growth and higher protection mix.

Distribution muscle is a key competitive advantage with SBI Life and retail business franchise is geographically the most-well diversified.

We marginally tweak embedded value estimate by (+)2 percent for FY20-21.

Brokerage: Deutsche Bank | Rating: Buy | Target: Rs 830 | Return: 35 percent

We expect the embedded value to compound at 17 percent over FY20-22 as growth was steady in Q4 with margin expansion and improvement in the mix.

Management is confident of growing protection faster than the overall annual premium equivalent. Persistency trends and surrender ratio of SBI Life remains favourable.

Hence, we have a buy rating and raised price target to Rs 830 from Rs 800 per share.