ADVERTISEMENT

SBI Life Q3 Review: Analysts Retain 'Buy', Citing Distribution, Cost Efficiency

The private insurer's October-December profit fell 16% over the year earlier, missing estimates

<div class="paragraphs"><p>Source: Unsplash</p></div>
Source: Unsplash

Most analysts retained their 'buy' ratings on SBI Life Insurance Co., citing its distribution network, product mix, and cost efficiencies.

However, the private insurer's October-December net profit fell 16% over the year earlier, missing estimates. But, its revenue was up 30%, while net premiums rose 6%. Its value of new business grew 44% in the nine-months ended December 2022, and the VNB margin stood at 29.6% against 24.8% a year ago.

Emkay Global has listed SBI Life Insurance as its preferred pick in the sector.

Shares of the company have gained 0.09% to Rs 1,296.60 apiece so far at 10:11 a.m., while the benchmark BSE Sensex traded 0.72% higher.

Of the 35 analysts tracking the insurer, 34 maintain 'buy' and one suggests a 'hold', according to Bloomberg data. The average 12-month consensus price target implies an upside of 26.2%.

Opinion
SBI Life Insurance Q3 Results: Profit Falls, Misses Estimates

Here's what brokerages have to say about SBI Life's Q3 FY23 results:

Motilal Oswal

  • Maintains a ‘buy’ rating with a target price of Rs 1,570 apiece, implying an upside of 21%.

  • SBI Life reported a mixed third quarter of FY23.

  • Annualised premium equivalent grew 19% year-on-year, within which non-par savings and annuity grew 75% and 17% year-on-year, respectively.

  • Protection business grew 10% year-on-year.

  • This was led by 18% growth in group protection and a sequential pick-up in individual protection growth.

  • Par products grew 20% year-on-year, while ULIP grew 15% year-on-year and 77% sequentially, despite volatility in the capital markets.

  • VNB margins contracted 374 basis points quarter-on-quarter to 27.8% due to higher growth in unit-linked insurance products.

  • Going ahead, the management guided that non-par guaranteed products will continue to see traction, and with good equity markets, demand may rise.

  • A broad guidance for the product mix would be 60% from ULIP and the remaining from other products.

  • The management guided for VNB margins to be in the range of 28–30%.

  • All distribution channels continued to see a rise in productivity, which resulted in a better cost ratio.

  • SBI Life continues to maintain its cost leadership.

  • The brokerage lowered VNB margin estimates by 160–170 basis points for FY23–25.

  • VNB margins are expected to remain at around 30% in FY25.

  • Estimates a 25% CAGR in APE over FY22–25.

  • The return on embedded value is expected to stay around 20–22%.

Emkay Global

  • Maintains ‘buy’ with a target price of Rs 1,680 apiece, implying an upside of 29%.

  • SBI Life continued its good performance in Q3 FY23 and reported a good set of numbers for 9MFY23.

  • VNB is above their estimates, driven by APE, and VNB margin is in line with their estimates.

  • Banca Channel saw strong growth in ULIP business in Q3.

  • This caused a sequential softening in the VNB margin.

  • In FY23, the cost and commission ratio increased a bit, which was largely a reflection of changes in the product mix.

  • SBI Life continued to remain the industry leader on the cost and commission front.

  • The persistency ratio was largely stable but showed material improvement in the 61st month.

  • So far in FY23, opex, persistency, and mortality experiences have been better than expected based on the assumptions built into its embedded value and VNB.

  • This leaves some scope for positive operating variances by year's end.

  • Going ahead, the agency channel and protection product are expected to drive up growth and margins in Q4.

  • SBI Life is on the right track with its powerful distribution channels, better-than-industry growth, and best-in-industry margins due to its product mix and cost efficiencies.

  • SBI Life remains the top pick in the sector.

HDFC Securities

  • Maintains ‘buy’ with a target price of Rs 1,850 apiece, implying an upside of 43%.

  • VNB below their estimates and VNB margins moderated on the back of higher ULIP share.

  • Management is upbeat about growth in the non-par savings business.

  • With a sharp rise in deposit pricing—competitive product—brokerages expect repricing in non-par guaranteed savings products, which is likely to pose margin pressure.

  • With group protection growing 18% YoY, the management stated that this was predominantly in the credit life business.

  • Given the strong system-wide credit growth trend and 50% attachment rate in the parent banca channel, the brokerage expects this business to cushion margins.

  • With capital markets stabilising, ULIPs grew 15% year-on-year, suggesting a revival in the segment.

  • Retail protection exhibited early signs of recovery, growing 18% quarter-on-quarter and +3% year-on-year, after a weak H1.

  • The company's three growth levers stay in place:

    (1) SBI’s massive distribution network—24000+ branches;

    (2) a healthy mix of protection and non-par, and

    (3) the lowest opex ratio among peers—9MFY23: 9.7%.