
InCred Equities has upgraded SBI Life Insurance Company Ltd (SBI Life) stock to ‘Add’ rating from ‘Hold’ earlier with a revised target price of Rs 2,150, saying the stock offers a favourable risk-reward. The brokerage said margins for SBI Life are at the bottom and the new surrender norms are likely to have only limited impact on the insurer.
The brokerage said it always liked SBI Life for its leadership strength, strong distribution network and superior operating efficiency but downgraded the stock in March 2023 due to concerns over the growth & margin trajectory. The concerns emerged due to a change in taxation norms for large-ticket non-par products.
“Going ahead, with margins already at the bottom and a gradual revival in the growth trajectory, the stock offers a favourable risk-reward ratio. We upgrade our rating on SBI Life to ADD (from HOLD) with a higher target price of Rs 2,150 (Rs 1,750 earlier), or 2.6 times P/FY26F EV. Downside risks: Weak growth and incremental pressure on margins.
The revised SBI Life target price is 23 per cent higher than InCred’s previous target price.
InCred Equities said margins for SBI Life would improve gradually with the life insurer focusing on protection plans. The negative impact of the surge in ULIPs are already factored in, the brokerage said.
“We are turning constructively positive on VNB growth for SBI Life, which will be contributed by ULIP sales as well as by launching new protection products,” it said.
The VNB margin fell 130 basis points to 26.8 per cent in Q1 and was a key negative surprise in the June quarter for SBI Life Insurance. The sluggish demand for protection plans, coupled with SBI Life’s inability to pass on the interest rate dip to end- customers under non-par products, resulted in such a sharp fall. The margin trajectory is now seen improving, gradually.
The banca channel contributed 59 per cent to the APE (annual premium equivalent) channel mix, down from 65 per cent in Q1FY24. InCred Equities is attributing the same to the seasonality factor and expects an improvement from the September quarter, led by rising demand for ULIP products due to the favourable momentum in capital markets.
“State Bank of India (the parent of SBIL) will continue to remain a key contributor to the growth of ULIP products. We have revised our VNB growth estimate to 18.3 per cent CAGR over FY24-27F from 14.2 per cent CAGR earlier,” it said.