Motilal Oswal Recommends Buying SBI Life Insurance For 24% Gains

Motilal Oswal has a buy call on SBI Life Insurance with a target price of Rs 1450. The CMP of the stock on closed on 29 April is INR 1,105.50. SBI Life Insurance is one of the biggest life insurance provided with pan India presence and reach. The company on Thursday, April 28 reported a 26 per cent rise in net profit at Rs 672.15 cr for the fourth quarter ended March 2022.

Q4FY22 Results

The brokerage stated in the report, "SBI Life Insurance reported a soft 4QFY22 with APE growth of 4% YoY and flattish VNB growth (missed our estimate by 2%). VNB margin improved 120bp QoQ to 26.8% while shareholders' PAT grew 26% YoY to INR6.7b. APE growth was muted in 4QFY22 due to pressure in ULIP and par products. ULIP posted a 6% decline YoY after four quarters of strong double-digit growth. The decline was led by heightened volatility in capital markets due to geopolitical crisis and an increase in interest rates. Par products dipped 31% YoY. Persistency ratio improved across all cohorts with 120bp/110bp QoQ improvement in 13M/61M, respectively. On an ETR basis, EV grew 9% YoY to INR396b in FY22. Operating RoEV was at 20.6% for FY22 with an EVOP of INR69b. This is mainly because it included a positive impact of INR12.2b in operating experience and INR4.1b in VNB due to a change in computation method from ATR to ETR basis. "

Reported premium modest growth

According to the brokerage, "SBI Life Insurance reported 12% YoY growth in net premium, led by 15% YoY growth in renewal business and 8% YoY growth in new business. Shareholders' PAT grew 26% YoY aided by controlled expenses and lower claims. Total APE (Annualized premium equivalent) grew 4% YoY, due to a strong 97% YoY growth in non-par savings and 32% YoY growth in protection. Annuity growth moderated to 13% YoY in 4QFY22 after a strong 3Q. However, participating products and ULIPs businesses declined 31% YoY and 6% YoY, respectively. Absolute VNB (Value of new business)growth was flat in 4QFY22 at INR11.1b. However, it saw a robust growth of 39% YoY in FY22 led by a combination of healthy 25% YoY APE growth and a 270bp improvement in VNB margin to 25.9%. The margin improvement was led by an improvement in the product mix. Operating EVOP for FY22 came in at INR68.9 with an operating RoEV of 20.6%. However, this includes a couple of positive one-off items as SBI Life Insurance migrated from ATR to ETR basis of computing embedded value (EV). An adverse mortality variance of INR10.8b in FY22 due to high Covid claims was offset by the positive impact of the change in computation methodology - INR 12.2b in operating experience and INR 4.1b in VNB. On the distribution front, the share of the banca/agency channel in total APE stood at ~66%/~23%, with the banca channel gaining 252bp QoQ. The share of other channels (including tie-ups with other partners) was at ~11%. Though the cost ratio inched up marginally to 5.1% in FY22 from 4.8% in FY21, SBI LIFE continued to retain cost leadership v/s peers. Solvency ratio stood at 205% in 4Q v/s 209% in 3QFY22."

24% gains likely in the stock, buy for a target price of INR 1450

The Brokerage stated, "SBI Life Insurance reported a modest quarter with 4% YoY APE growth while VNB stood flat even though VNB margin improved sequentially fueled by an improving product mix. The shift in product mix towards higher-margin products such as Non-PAR and Protection should continue to drive an improvement in VNB margin as ULIP growth moderates due to volatile capital markets. Despite a marginal rise in the cost ratio, SBILIFE continued to maintain cost leadership. Persistency saw improvement across cohorts. We estimate 22% CAGR in APE over FY22-24 and VNB margin to improve to 27.0% by FY24, thus enabling 24% VNB CAGR, while RoEV sustains at ~20%. We maintain our BUY rating with a revised TP of INR1,450 (premised on 2.6x FY24E EV)."

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.