Maintain Buy with price target of Rs 1,110.
SBI Life is quite optimistic about a rebound in premiums led by a combination of cross-sell by SBI, penetration into new bank partners’ clients and new product launches. It also sees scope for expansion in margins with better product mix & cost controls. SBI Life’s targetted client base can have overlaps with LIC’s target segment and that would need to be watched. We see 20% VNB CAGR over FY21-23 and ROEV of 17%. Maintain Buy with price target of Rs 1,110.
Plan for FY22: SBI Life seems quite optimistic about premium momentum for FY21 and FY22 with a combination of (i) increased cross-sells by SBI which drove 60% + of their premiums in 9MFY21; (ii) increasing penetration into new PSU bank partnerships; and (iii) launch of new products on non-Par as well as annuity side. In the ULIP segment, SBI should be less affected by changes in tax laws as its ticket size of premiums was lower than the industry average. Margins can also expand with increasing share of pure protection over return of premium products (from 10-15% of retail protection to 25-30%). There should be scope for further expansion in margins aided by a rising share of pure protection (vs. ROPs) and some cost efficiencies.
New partnerships offer growth prospects: The key opportunity for SBI Life is to deepen its partnership with non-SBI PSU banks like Uco Bank, Indian Bank/ Allahabad Bank and Pvt lender South Indian Bank, which together drive just around 2-3% of the retail APE and management sees scope for stronger growth.
It has also recently forged a bancassurance partnership with Yes Bank – this should reflect in growth from FY22 onwards. We will watch for any impact of aggressive sales push by LIC, which may have higher overlap with the targetted segments and markets of SBI Life.
Maintain Buy: SBI Life remains a strong play on the growth runway afforded by SBI’s client base (to date <2% of SBI customer pool has been tapped). We roll-forward our price target to Rs 1,110 (from Rs 1,080) based on 2.7x Mar-23 P/EV and maintain our Buy rating.
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