SBI Life Insurance, one of the leading life insurance companies in India and a constituent of the Nifty 50 index, finds itself in a challenging position as its stock hovers near its 52-week low.
The company's shares, which were trading at around ₹1,323 apiece in mid-January 2023, declined steadily by 12% to trade at the current level of ₹1,165.60 apiece. This has pushed the stock to trade near its one-year low of ₹1,051.
The sell-off started after the company's Q3 FY23 earnings missed street estimates, and the stock was further impacted by the government's decision in the FY24 Budget to limit the tax exemption from the proceeds of insurance policies in certain cases.
Overall, between mid-January and mid-March, the stock fell sharply, losing nearly 20% of its value, reaching ₹1,062.65. Further, in the last one-year period, the stock gained 8.7%, underperforming the Nifty 50 index, which gained 13.12% in the same period.
Brokerages stay bullish on SBI Life
Domestic brokerage firms maintained their bullish outlook on the stock following the company's Q4 performance. KR Choksey said that the company's Q4FY23 performance revealed a decent set of numbers, with a sequential expansion of the VNB margins driven by the change in product mix.
The non-par savings and annuity segment reported robust growth during the quarter, which is in line with the industry trend, it said.
The private sector life insurer reported a net profit of ₹777 crore for the March-ending quarter, a growth of 15.62% compared to a net profit of ₹672 crore.
The gross written premium (GWP) grew 14.3% YoY to Rs. 20,013 crore, mainly driven by 10.1% YoY and 9.4% QoQ growth in renewal premium. For FY23, the GWP reported a strong growth of 14.6% YoY, which remained broad-based across the segments, said KR Choksey.
The New Business Premium (NBP) for the quarter reported a sequential decline of 4.1% QoQ, whereas it grew by 21.2% YoY. The single premium contribution stood at 30.0% of the individual business premium, which is mainly attributed to growth in its individual annuity product.
The APE for Q4FY23 stood at ₹4,550 crore, a growth of 10.1%YoY, while for FY23, the growth was 17.6% led by strong growth in the non-par and annuity segments, said the brokerage firm.
The VNB margins were 31.6%, higher by 384 bps QoQ in Q4FY23, while declined by 404 bps YoY, it noted.
In FY23, a total of 219.8 million new policies were issued by the company, representing a growth of 14% over the previous year. Since 2010, the company has maintained its leadership position in the number of policies issued and consistently delivered YoY growth for the last 10 years.
This reflects the clear goal of the company to increase penetration and achieve holistic growth, said KR Choksey.
On the other hand, the company has a strong solvency ratio of 2.15x, well above the mandated regulatory requirement of 1.50x.
During the March quarter, SBI Life signed a corporate agency agreement with Karur Vysya Bank. It is confident that these partnerships will further enable the company to expand the insurance market across the country.
Limited impact from new tax regulations
"SBI Life Insurance (SBLI) stands relatively unaffected by the new tax regulations as it holds a low share of policies with ticket sizes exceeding ₹500k, accounting for less than 2% of its total Annualized Premium Equivalent (APE) in the first nine months of FY23."
"Additionally, the company has outperformed its peers in terms of policy growth, with a 14% year-on-year growth in FY23 and a CAGR of 12% between FY20 and FY23," said ICICI Securities.
New target price
Following the release of the company's Q4 performance, brokerages maintain a positive outlook on the stock. Motilal Oswal reaffirms its ‘buy’ rating on the stock and has set a target price of ₹1,500 per share.
ICICI Securities also maintained its 'buy' call on the stock and raised its target price to ₹1,650 apiece from ₹1,600. This new revised target price indicates a new life-time high for the stock.
While KR Choksey has a target price of ₹1,630 apiece on SBI Life Insurance.
BoB Capital Markets raised the target price on the stock to ₹1,520 apiece from ₹1,459 earlier, maintaining a 'buy' recommendation. "We like SBI Life for its market leadership, high VNB margins, efficient cost ratios, and strong brand," it said.
Meanwhile, HDFC Securities expects SBI Life to deliver FY23–25E APE and VNB CAGRs of 12 and 12%. It retains a 'buy' rating with a price target of 1,580 apiece.
SBI Life Insurance is a large-cap stock with a market capitalization of over ₹1,16,665 crore. The company provides individual and group insurance plans, including traditional and unit-linked plans. Its products cover life, health, annuity, pension, and variable insurance.
It has a presence across the country through its 992 offices, with a large and productive individual agent network of about 2,08,774 agents and 63 corporate agents, and 14 bancassurance with more than 39,000 partner branches, 129 brokers, and other insurance marketing firms, its website shows.
30 analysts polled by MintGenie on average have a 'strong buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.