SBI Life share price: CLSA says valuations offering excellent investment opportunity; Kotak, Jefferies, others upgrade stock

SBI Life share price: CLSA Upgrades SBI Life Insurance Company to BUY from Outperform rating, with price target of Rs 1000. CLSA believes volumes in SBI Life are recovering and incremental risk reward is favourable. They think SBI Life’s Q2 FY21 was in-line, with overall APE contraction reducing to 4% in Q2 FY21 after a fall of 32% in Q1 FY21. VNB margins at 20.2% were flat YoY in the first half of FY21 driven by improvement in business mix which more than offset opex/interest rate drags. CLSA expects flat APE in the second half of FY21 and expects APE / VNB growth to pick up to 16/19% CAGR over FY21-23CL. The stock has come off by 12% in the last three months and underperformed the Nifty / bank index by  20% and valuations have come off currently. With improving APE momentum and reasonable valuations now, CLSA upgrades their rating to BUY from Outperform.

SBI Life Protection mix continues to improve:

In SBI Life, individual protection APE grew by 58% YoY in Q2 after 35% contraction in Q1 FY21. Management indicated that the majority of this growth has been driven by growth in number of policies and only marginally aided by pricing. Even on group credit life, management indicated that APE was flat in Q2 FY21.

Jefferies reiterates Buy rating on SBI Life with a target price of Rs 1040. Key Takeaway for Q2 FY21 for SBI Life’s is VNB of Rs 5.1 bn, -1% YoY, was in line with expectations. APE fell 4% YoY & despite rise in share of protection premiums by 540 bps YoY, margin rose only 40 bps due to negative operating variance & lower rates on protection. While management may be keeping buffers, formal resets will lend clarity.

Jefferies says they are comfortable by caution on guaranteed return products & optimistic about ability to cross sell to SBI's clients.

Kotak Institutional Equities retains BUY on SBI Life with FV of Rs 1,100 (up from Rs1,050). They maintain flat VNB despite macro challenges.

SBI Life maintained almost flat VNB YoY in a rather challenging quarter due to:

(1)    Pick up in individual protection and credit life to support VNB
(2)    Sequential increase in ULIPs
(3)    Smart ramp up (APE almost doubled YoY) in the others (mostly non SBI banks) channel. Kotak Insti expects improving business momentum in the second half of FY21, steady margin expansion to drive strong VNB and thereby stock rerating.

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HDFC Securities retained their BUY rating on SBI Life with a target price of Rs 1,040. With business recovery underway (APE: +113.0% QoQ), along with increasing VNB (VNB: +114.5% QoQ), HDFC Securities believe SBI Life is on track to deliver a respectable FY21E- (APE/VNB -8.9/-8.3% YoY). HDFC Securities, however, take a longer term view on the business and appreciate the strong distribution footprint of its parent SBI (24k+ branches), improving protection share (first half of FY21: 12.6%, +545bps YoY), and lowest operating cost ratios (1HFY21: 8.6%, -180bps YoY). 

Ambit maintains BUY rating on SBI Life with target price of Rs 1020. They say VNB declined 2% YoY vs 27% decline last quarter; exit growth rate returned to pre-Covid levels. Overall APE declined 4% YoY given 15% decline in individual savings. Retail protection grew 58% YoY, in line with expectation. This led to 10 bps sequential margin improvement to 20.2%. ULIP premiums recovered from Q1 FY21 low of 51%/59% YoY decline to 13%/20% decline, driven by the bancassurance channel returning to business (64% of APE mix vs 56% in Q1 FY21). Persistency improved across most buckets. 13th-month persistency improved 437 bps QoQ to 85.9%. Though there were some cost efficiencies, decline in operating expense ratio (4.6% vs 7.1% in Q1 FY21) was driven by higher share of group business. Solvency improved to 245% vs 239% in Q1 FY21.