SBI Life Insurance share price: Jefferies says Buy with target price of Rs 1150

SBI Life Insurance share price: Jefferies highlights in its report that SBI Life, for 4QFY21, posted VNB (Value of New Business) of Rs 8.8 bn, +63% YoY (2yr CAGR of 25%) & ahead of their estimates, led by APE growth of 46% (2yr CAGR of 13%) & expansion in margins to 22%. SBI Life is benefiting from expansion in segments like non-par & retail protection as well as tie-ups with new PSU banks. Persistency improved across most cohorts (13m at 85%). Jefferies raise VNB by 9-10% to 20% CAGR over FY21-24 & saw ROEV of 17%. Jefferies says investors can Buy with a target price of Rs 1150 (earlier Rs 1110).

In 4QFY21, SBI Life witnessed a 46% YoY growth in APE (on a low base, 2yr CAGR at 13%). The growth was led by:

(1)   strong pick-up in non-par sales where it launched new product
(2)   continued recovery in Ulip sales
(3)   growth in retail protection

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Going forward, growth will be aided by expansion in distribution partnership where SBI Life will leverage partnerships with PSU banks like (such as Indian Bank, Syndicate Bank, Uco Bank, Punjab & Sind Bank, etc) and ramp-up of new products on non-par side, says Jefferies

Jefferies says it was positively surprised by VNB margin that expanded by 220bps both YoY and QoQ to 22%. This was driven by a combination of increased share of profitable products (like retail-protection and non par) and also some year-end adjustments - full year margins at 20% are our anchors. Jefferies sees further scope in expansion of margins as SBI Life increases the share of traditional protection business (the share can rise from 15% now to 30-40% over a few years) and this will drive VNB to grow faster than APE over next 2-3 years. During 4Q, SBI Life reported operating ROEV of 19.1% and EV grew by 27% YoY as it included MTM gains on shareholder investments. Persistency rates improved across most cohorts, with 13mth persistency for FY21 up 170bps YoY to 85%. With the solvency ratio at 215% in Mar-21, the company may not need capital for organic growth

SBI Life will benefit from the growth runway afforded by SBI's client base (till date <3% of SBI customer pool has been tapped) and new banca partnerships. Jefferies raised VNB forecasts for FY22-23 by 9-10% as Jefferies factor better premium growth. Jefferies has reiterated its Buy rating with a target price of Rs 1150 (earlier Rs 1110) based on 2.6x Mar-23 P/EV.