SBI Life Surges Most In Two Years As Analysts Reiterate 'Buy' Despite Q1 Miss

Shares of SBI Life Insurance Co. surged the most in over two years even as the insurer reported below-estimate first-quarter earnings.

The company reported net income below average analyst estimate for the quarter-ended June post market hours on Thursday. Shares rose as much as 9.5% in intraday trade before settling with 8.64% gains.

Trading volume was more than 8.5 times the 30-day average, when markets closed. The relative strength index of the stock is 77, suggesting it may be overbought.

Q1 FY2023 (Consolidated, YoY)

• Revenue down 71% at Rs 4,641 crore (Estimate: Rs 9,579 crore)

• Net profit up 18% at Rs 263 crore (Estimate: Rs 453 crore)

• Value of new business up 1.3 times at Rs 880 crore.

• VNB margin at 30.4% Vs 23.7%

The Q1 miss did not deter brokerages from reiterating 'buy' on the stock. About 10 analysts retained 'buy' or 'overweight' recommendation on SBI Life after earnings, while Macquarie remained 'neutral'.

The stock remained as the top pick in the sector for several analysts. They cited improvement in VNB margins, strong distribution channels, bancassurance productivity growth as key drivers and raised VNB margin estimates as well as annual premium equivalent growth estimates for FY23E.

Of the 35 analysts tracking the company, 32 maintain 'buy' and three suggest 'hold', according to Bloomberg data. The average of 12-month price targets implies a return potential of 18.5%.

Here's the gist of brokerages' view on SBI Life's earnings and growth prospects:

Jefferies

• Reiterates 'buy' with target price kept unchanged at Rs 1,580, an implied upside of 23.34%.

• Strong Q1 performance was aided by 80% rise in premiums and richer product mix.

• Higher growth in profitable segments aided VNB margin.

• Raises VNB estimates by 12-14% to account for the strong growth momentum in Q1.

• The stock is attractively priced.

Motilal Oswal

• Reiterates 'buy' and raised target price to Rs 1,500, an implied upside of 26%.

• Strong response to newly launched product 'Smart Annuity Plus' aided non-par performance.

• Strong product mix aided growth in VNB margin.

• Raises VNB margin estimates by 340 and 270 basis points for FY23 and FY24, respectively.

• Strong distribution channels, rise in productivity of banca and agency channels powered improved in cost ratio and aided growth

• Expects the firm to deliver 27% CAGR in APE over FY22-24.

• Identifies SBI Life as the preferred pick in the life insurance space.

Kotak Institutional Equities

• Reiterates 'buy' and raises target from Rs 1,500 to Rs 1,600, an implied return of 23.07%

• The company's performance stands out 'by a mile' compared to peers.

• Raise APE and VNB estimates to factor underlying growth momentum.

• Believes that SBI is a key growth driver with bancassurance up 98% in June quarter.

• High growth in protection and massive margin expansion bode well for the company.

• Expects the firm to deliver 25% APE growth in FY2023E.

• Identifies SBI Life as the top pick in the sector and believes that channel diversification will drive re-rating.