SBI Life Q2 Review: Analysts See Better Product Mix To Aid Margin

Analysts remained upbeat on SBI Life Insurance Co. after the second quarter, citing to a balanced product mix and value of new business offering potential for margin improvement.

The private insurer’s net profit increased sequentially in the three months ended September but missed analyst estimates. Its revenue and net premium also rose over the preceding quarter.

Shares of SBI Life gained more than 3% in early trade on Thursday to Rs 1,221.75 apiece. Of the 38 analysts tracking the company, 36 recommend a 'buy' and two suggest a 'hold', according to Bloomberg data. The 12-month consensus price target implies an upside of 16.8%.

Here's what brokerages have to say about SBI Life's Q2 FY22 results:

• Maintains ‘buy’ with a target price of Rs 1,670 apiece, implying an upside of 40.3%.

• The result was broadly in line with expectations and management commentary reiterated the strong growth outlook for the next few years.

• SBI Life’s first half FY22 results reflect all-round solid growth, with strong growth across the distribution channels and a material improvement in profitability.

• With all its old warhorse distribution channels (SBI and agency) rejuvenated and performing strongly, and the newer banca partners starting to perform well, the growth outlook is strong over the coming years.

• SBI Life remains the cost leader in the industry.

• The value of new business margin of SBI Life at 25.4% (on ETR) is already comparable with peers.

• This is despite having a relatively heavy unit linked insurance product mix as SBI Life benefits from low distribution costs and operating expense.

• Management expects a gradual improvement in VNB margin to continue on the back of improving product mix and operating leverage.

• Maintains ‘buy’ with a target price of Rs 1,460 apiece, implying an upside of 23%.

• Reported strong annualised premium equivalent growth led by growth in ULIPs.

• Non-par savings growth was also strong, in line with the management’s guidance last quarter.

• For FY22, the management expects the share of non-par at 12-13%. Over the medium-to-long term, the non-par share may increase to 15-18%.

• The company has been able to undertake re-pricing across most

  product lines, leading to enhanced margins.

• Launch of a new term plan, eShield, is expected to strengthen its bouquet of protection offerings and is insulated from reinsurance rate hike for the next 12 months.

• This implies that as competitors undertake price revisions, SBI Life’s term offering would become even more competitive.

• Given the second quarter FY22 margin profile, further increase in non-par share and new term plan launch, the brokerage has increased margin assumptions.

• Increased APE and VNB estimates, taking into account continued strong growth prospects and improving product mix should lead to higher margins.

• Maintains ‘buy’ with a target price of Rs 1,500 apiece, implying an upside of 27%.

• SBI Life reported a strong quarter, with VNB growing at a robust pace.

• This was led by an improving product mix towards high margin segments and strong business volume, with growth bouncing back strongly across all key segments.

• ULIP saw a strong rebound; non-par and protection grew better than its peers.

• The shift in product mix towards higher margin products such as non-par and protection would drive an improvement in VNB margin.

• The company continues to maintain its cost leadership, while persistency trends have improved on a year-on-year basis.

• The company does not expect any price hike in protection products over the next one year.

• Persistency has improved, while lower new business premium growth last year is impacting renewal growth in FY22, said the management.

• Maintains ‘buy’ with a target price of Rs 1,360 apiece, implying an upside of 15%.

• Balanced product mix with focus on opex ratio ahead of industry.

• Strong parentage-led distribution remains key catalyst.

• Q2 results show steady business traction and optimistic outlook on claims.

  Key triggers for future price performance:

• Launch of non-par and protection product to aid overall growth and VNB.

• Covid-19 claims seen to moderate; reserves at Rs 266 crore seem comfortable.

• Strong distribution network remains core to maintain business momentum.

• Product mix and improvement in persistency to aid VNB margins at 21-22%.