Shares of SBI Life Insurance Company jumped in early trade on Wednesday, after the insurance major declared decent quarterly results (after market hours) on Tuesday. Shares of SBI Life jumped nearly 5 per cent in early trade to a high of ₹749.5 on the BSE, but gave up over 50 per cent of gains due to volatile market condition, to close at ₹731.55, up 2.2 per cent.

Most analysts remain bullish on the company but see huge challenges ahead.

The company has posted a near 16 per cent increase in its net profit for the fourth quarter of the fiscal 2019-20 at ₹530.67 crore, as against ₹457.68 crore in the year ago period. The insurer’s net premium income grew 4.67 per cent to ₹11,862.98 crore (₹11,333.02 crore). Its assets under management grew 14 per cent to ₹1.6-lakh crore compared to last fiscal The debt-equity mix is at 79:21.

According to HDFC Securities, SBI Life’s Q4-FY20 performance was marginally below expectations, as New Business Premium/Average Premium Equivalent declined 11.8/12.6 per cent y-o-y due to lockdown, while VNB (value of new business) margin sustained at 20.7 per cent (+90 bps y-o-y). “Despite SBI Life’s ambition to post APE growth in FY21, given the macros, we remain sceptical,” said HDFC Securities, which maintains a ‘buy’ rating on the stock, but reduced the price target to ₹975.

Emkay Global Research assumes coverage with a ‘buy’ rating (overweight) and a revised target price of ₹892 (earlier ₹1,100). “We believe that SBIL’s margin will improve owing to a gradual rise in protection plans’ share along with the elevated share of non-par products,” it said and added that “the management needs to re-price its existing protection plans amid a rise in prices for reinsurance.”

‘Aggressive’ projection

According to YES Securities, management aspiration of a single digit growth in premiums looks aggressive. For ULIPs, SBI Life relatively better placed given higher exposure to debt funds. “Despite minimal hike in protection tariffs, management expects to maintain VNB margins (70‐75 per cent) for protection. We find this challenging to achieve,” it said.

“Product mix shift towards protection can drive VNB margin improvement of 230 bps during FY20‐22E to 21 per cent. We value to company on a discounted VNB approach to arrive at a fair value of ₹764,” said YES Securities.

For Ambit Capital, it’s still a ‘Sell’ candidate. Given unique competitive strengths of pseudo-sovereign identity, entrenched distribution network of over 22,000 SBI Bank branches and latent cross-sell potential, expectation around longevity of growth remains intact. “We expect premium growth for SBI Life to be 200-300 bps higher than long-term industry growth. But rising volatility and sharp sales loss in Q1-FY21 would keep VNB growth in FY21 under check. We factor in APE in FY21 to be muted at nearly 5 per cent, said Ambit, which revised the target price of ₹720 (₹730 earlier),” says Ambit.

Going forward, according to Nirmal Bang Securities, non-participating policy is unlikely to be a focus area and would see moderation in growth. To keep persistency in check, a lot of focus would be expended on ensuring that renewals come through. In terms of new business growth outlook, the management commentary indicates that FY21 would be a tough year, Nirmal Bang said. The brokerage has retained its ‘Buy’ rating on SBI Life with a target price of ₹914 (from ₹930 earlier).

Related Topics
comment COMMENT NOW