Buy SBI Life Insurance Company, target Rs 750: HDFC Securities

HDFC Securities has a buy call on SBI Life Insurance Company with a target price of Rs 750.

The current market price of SBI Life Insurance Company is Rs 626.50.

Time period given by the brokerage is one year when SBI Life Insurance Company price can reach the defined target.


Investment rationale by the brokerage-
Driven by protection business (NBP Rs 480 crore, +220 per cent YoY), SBI Life’s 3QFY19 total NBP grew 34.6 per cent YoY to Rs 3,920 crore. Total APE at Rs 2,890 crore grew 17.2 per cent YoY, an improvement from 14.2 per cent seen in 2QFY19.

Protection business share on APE basis improved to 7.3 per cent (198bps YoY) as the company’s focus on individual protection (through its parent SBI) resulted in a 10x YoY/+37.5 per cent QoQ growth in individual protection business to Rs 1.1bn.

Opex ratio improved to 9.6 per cent (-135bps YoY) and adj. VNB margin expanded 40bps QoQ to 19.6 per cent (9MFY19). Management stated that protection business contributes ~33 per cent to overall VNB, indicating a protection business margin of 105 per cent.

9MFY19 renewal premium growth was at 37 per cent reflecting sound underwriting. Individual APE grew at a sound 17.5 per cent YoY to Rs 2,720 crore while group APE grew 7.2 per cent YoY to Rs 170 crore.

Group APE growth is optically muted as the 5yr regular pay credit protect policy has been changed to a single premium one. PAT for 3QFY19 was at Rs 260 crore (+13.0 per cent YoY).

We continue to like SBI Life due to the strong distribution footprint of its parent SBI, lowest operating cost ratios in the industry, and tailwinds from financialisation of savings.

Given a strong improvement in protection mix and pick-up in VNB margin, we increase our FY19-21E VNB by 1-2.5 per cent and maintain 'BUY' with a marginally increased target price of Rs 750 (FY20 EV + 16.7x FY21 VNB).