SBI Life Insurance share ‘buy’ or ‘sell’? Profit jumps 131% on-year, analysts see upside potential

SBI Life Insurance Company’s shares were trading flat on Sensex, erasing all opening gains on Tuesday. The Life Insurance major reported a 131% jump in net profit to Rs 299.7 crore from Rs 129.9 crore in the same period last year. Annual Premium Equivalent (APE) for the second quarter of this fiscal year came in at Rs 2,700 crore, down 3.6% on-year basis but 113% higher when compared to the previous quarter. Cost ratios have improved significantly for SBI Life Insurance with commission ratios falling on-year basis and operational expenditure ratio improving to 4.6%.

 Pick-up in individual protection and credit life to support VNB, sequential increase in ULIPs, and smart ramp-up in the others (mostly non-SBI banks) channel, were seen as positives for SBI Life Insurance Company by analysts at Kotak securities. “We expect improving business momentum in 2H, steady margin expansion to drive strong VNB and thereby stock rerating,” they added. 

SBI Life’s management informed that the agent network has increased to 154k from 123k. However, disruptions in productivity of agents remained due to the coronavirus pandemic. SBI Life posted a net premium growth of 27% on-year, led by single premium growth of 71% from the same period last year and renewal premium growth of 28%. “SBI Life continues to report steady growth in the Protection business, while the trend in ULIP is likely to recover gradually. Thus, we expect growth to revive meaningfully from FY22e,” said brokerage and research firm Motilal Oswal in a note. The brokerage firm expects VNB margin to reach nearly 21% by financial year 2023 and thus deliver a 17% VNB CAGR over financial year 2020–23. “Thus, we expect operating ROEV to sustain at ~18% by FY23E. Maintain Buy, with TP unchanged at Rs 1,000 per share,” Motilal Oswal added. 

The company has been witnessing healthy growth from non-core channels. APE growth through the bancassurance channel, which includes only SBI, declined 9% from the previous year. On the other hand, the non-core channels increased at a sharp pace of 95% on-year. “The company is focused on increasing the share of non-banca channels and is currently investing in proprietary digital platforms. The share of non-core channels increased 695 bps yoy in 2QFY21 to 14% of overall APE,” said Kotak Securities while pinning a fair value of Rs 1,100 per share. Analysts at Yes Securities see a target price of Rs 1,006 with consistent performance on the protection business and revival in the ULIP business.