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
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%.
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%.