Broking firm Motilal Oswal has placed a "buy" call on the stock of SBI Life Insurance and believes the stock can generate 20 per cent returns from current levels.
SBI LIFE is India's largest private life insurer with an Individual WRP market share of 13.3% in FY20. It offers a range of Savings/Protection products and has a distinct competitive advantage in distribution due to its strong parentage. SBI LIFE has a wide-spread network of 937 offices across the country with 130,418 productive agents and manages total AUM of INR1.6t as at Mar'20.
"The company's strong parentage and wide branch network provides it with a distinct distribution advantage over its peers, helping it to maintain low cost ratios and capitalize on the large clientele of SBI (449m), thus, providing it with a long-term structural growth story.
SBI LIFE has reported an improvement in persistency trend over the years, led by focus on garnering a better quality business and need-based selling. 13th month persistency improved to 86%. It maintains the highest 61st month persistency at 60% (v/s peers), and thus, is supported by healthy growth in renewal premium," Motilal Oswal Institutional Equities has stated in its report.
"SBI LIFE is also looking to optimize its product mix and is focused on improving its competitive positioning in the Protection/Annuity business. This should aid VNB margin expansion to reach 21% by FY23E, which should drive 17% CAGR in VNB over FY20-23E. Thus, we expect operating ROEV to improve to 18% by FY23E.
We, thus, estimate SBILIFE to deliver 16% CAGR in embedded value (EV). We initiate coverage on the stock with a Buy rating and target price of Rs 1,000per share," Motilal Oswal report has stated.