SBI Life Insurance is one of the outperforming stocks within the life insurance space. The stock has undergone a decent price as well as time wise correction in recent months. All this while, it has been lingering below 200-day simple moving average (SMA) of Rs 1,145, which is a sign of weakness. The stock has plunged 5.65 per cent so far this year. However, IIFL Securities sees 15 per cent upside on SBI Life, going forward. “We believe SBI Life will continue to deliver top-quartile growth in 2022, backed by well-diversified distribution, rational cost structure, and an under-penetrated mass customer base,” the brokerage said in its report.
“Technically, the stock has given an inverse head and shoulder pattern breakout on the daily chart with high volumes. Weekly RSI has crossed the midpoint mark from below indicating increase in momentum,” said IIFL Securities.
Firing on all cylinders: The company registered 29% on-year growth in savings APE, with strength in ULIPs (28% YoY) and Non-Par (86% YoY) partially offset by weakness in Par (-33%). Among distribution channels, total APE sourced by both, SBI as well as the agency channel, witnessed healthy growth, of 26% and 21% on-year, respectively. Retail protection APE grew 14%, and management indicated there were no price hikes unlike seen for peers. VNB margin also expanded by 210bps, while VNB grew 44% on an annual basis.
Distribution analysis reaffirms SBILI’s reach and headroom: SBI generated 89% of its business from outside Delhi, Maharashtra vs. 65%, 67% and 83% for HDFCLI, IPRU, LIC respectively. Further, rural contributed 19% of its FY21 premiums vs. 12%, 11%, 11% for HDFCLI, IPRU and LIC, suggesting a much wider reach. “On retail protection, sum assured/premium is 10x vs. 22x, 29x for HDFCLI and IPRU, while sum assured/policy is 0.8, 2.3,3.5m, respectively, indicating significant room to sell more protection products,” said IIFL Securities.
Positive management comment: SBI Life’s management commented that ULIPs saw good traction in the quarter ended December on account of the buoyancy in equity markets. “SBI Life has been able to improve overall margins despite softer retail protection business, as ULIP products with a better margin profile have gained traction and significant cost efficiencies have been continually seen, as indicated by its low-cost ratios. Management clarified that SBI Life has not experienced reinsurance hikes. It continues to retain the same proportion of its business as it did earlier,” it added.
Healthy balance between volume and ticket size growth: SBI Life clocked a healthy 14% top-quartile retail new business premium (NBP) CAGR over FY18-21. While this is lower than HDFC Life’s, a closer look at the data reveals that SBI Life’s growth has been well balanced, between volume growth (5%) and increase in ticket size per policy (9%). In comparison, HDFCLI’s premium growth has been driven by an increase in the retail premium per policy, while volumes have declined.
ICICI Pru Life, which is the leader in the higher-ticket ULIP category, has suffered over the same period, due to an imbalance in product mix as well as a drag from the ICICI Bank channel, which may have bottomed out by the end of FY21. Additionally, supply side constraints, including revised reinsurance rates, and a general aversion to visiting medical testing centers inspired weakness in IPRU’s retail protection business and led to decline in volume and new business premiums.
Recommendation: Buy at Rs 1,120-1160
12-month Target price: Rs 1,330
SBI Life is IIFL Securities’ top stock pick for 2022, having outperformed peers last year, as its distribution channel came back full force and the product mix stabilized with a rise in share of protection. “We believe SBILI will continue to deliver top-quartile growth in 2022, backed by well-diversified distribution, rational cost structure, and an under-penetrated mass customer base. We forecast 23%, 17% VNB and EV CAGR over FY22-24,” it said. Their 12-month target price is Rs1,330 on higher APE and implies 3.3x 2YF EV. SBI Life stock is trading at 21% discount to HDFCLI, despite offering similar growth.
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