SBI Life Q2 Review: Analysts Bet On Better VNB Margins, Distribution
The majority of the analysts maintained a 'buy' ratings on the company
Most analysts retained their 'buy' ratings on SBI Life Insurance Co. after the second-quarter earnings, citing improved value of new business margin, distribution expansion, improved persistency, and lower costs than peers.
The private insurer's July-September profit surged 53% over the year earlier, beating estimates. Its revenue was up 8% on higher net premiums. Its VNB margin for the half-year ended September 2022 stood at 31% against 24.7% a year ago.
Motilal Oswal and Emkay Global list SBI Life Insurance as their preferred pick in the sector.
Shares of the company gained 1.15% to Rs 1,272.05 apiece so far at 9:50 a.m., while the benchmark Nifty 50 traded flat on the NSE.
Of the 36 analysts tracking the insurer, 35 maintain 'buy' and one suggests a 'hold', according to Bloomberg data. The average of the 12-month consensus price target implies an upside of 28.5%.
Here's what brokerages have to say about SBI Life's Q2 FY23 results:
Motilal Oswal
Maintains ‘buy’ with a target price of Rs 1,500 apiece, implying an upside of 20%.
SBI Life reported a mixed quarter with annualised premium equivalent witnessing a decline while improved product mix resulted in VNB margin expansion to 31.6%, thereby driving beat on VNB.
Non-par savings and annuity business grew 121% and 86% year-on-year, respectively.
Protection business grew 10% year-on-year led by 28% growth in group protection, while individual protection saw a decline though picked up sequentially.
Par products grew 14% year-on-year while ULIP saw a decline of 26% year-on-year.
Despite volatility in capital markets, ULIPs saw a sequential recovery while protection business too saw a healthy pick up.
All distribution channels continue to see a rise in productivity that resulted in a better cost ratio. Banca channel declined by a modest 2% year-on-year while agency channel saw a higher decline of 10% year-on-year on an APE basis.
SBI Life continues to maintain its cost leadership position.
Persistency too saw an improvement across all cohorts.
Management aims to grow premiums by 20-25% plus, on a sustainable basis.
The company is not chasing a VNB margin number. The focus is to grow premiums.
A changing product mix within non-par portfolio has supported margins. There are no internal targets on the share of this segment and the insurer will continue to write as long as it can hedge the interest rate risk.
Emkay Global
Maintains ‘buy’ with a target price of Rs 1,675 apiece, implying an upside of 34%.
SBI Life continued to report strong performance in H1FY23.
VNB margin of 31% was higher versus the brokerage estimated 28.8%.
Margin improvement was largely driven by strong 17ppts increase in the share of non-par savings in the product mix.
VNB at Rs 2,120 crore was 8% ahead of estimate.
The slowdown in APE growth in Q2 was largely known and had a strong base effect.
Embedded value and AUM at H1FY23 came at Rs 4,240 crore (up 16% YoY) and Rs 2.83 lakh crore (up 16% YoY), respectively.
On net basis, results were impressive and demonstrated the ability to sustainably deliver VNB margin of 28-31%.
Going ahead, management remains confident of delivering robust growth with margins stable around current levels.
Its cost leadership (commission + opex) is well established and continues to further improve.
So far in FY23, the opex, persistency, and mortality experiences have been better than assumptions built in its EV and VNB, and this leaves some scope for positive operating variances by year-end.
On the capital front, the solvency ratio at H1FY23 was robust at 219%.
SBI Life is on the right track with its powerful distribution channels firing up and delivering better-than-industry growth and as its product mix and cost efficiencies are offering best-in-industry margins.
The company is positive about its new tie-up with India Post Payments Bank and believes that, given its brand and deep reach of India Post, it should see a long growth runway among the masses of rural India.
The minor decline in APE in Q2 was an outcome of a much stronger base effect of Q2 last year.
Axis Capital
Maintains ‘buy’ with a target price of Rs 1,500 apiece, implying an upside of 20%.
A well-entrenched distribution network, strong persistency trends and sufficient capital buffer (solvency ratio of 219%) provide a competitive advantage.
Increase VNB and APE estimates factoring in a strong H2FY23 and favorable product mix.
New business premium grew 8% year-on-year driven by non-par segment.
SBI Life’s Platina Plus product is witnessing high market acceptance and guaranteed non-par savings products contributed 20% to NBP/ 26% to APE in Q2FY23.
Though APE was marginally down (1.5% YoY), the management expects strong growth momentum in H2FY23 and guided for ~25% APE growth in FY23.
The company is optimistic about the growth prospects of the annuity segment (3.3% of product mix by APE) and expects the share of ULIP (~34% of NBP) to continue to grow.
Management anticipates low downside risk to VNB margin and expects it to be in the range of 29%-31% in FY23.
Persistency trend improved across cohorts with significant improvement in 49th month and 61st month persistency.
Additional reserve towards Covid-19 stood at Rs 290 crore and solvency ratio remains comfortable at 219%.
Around 3% of individual NBP was contributed from new non-SBI banca partners and the company expects share of new banks to grow.
