SBI Life Insurance hits record high; surges 34% thus far in FY20

Shares of SBI Life Insurance hit an all-time high of Rs 780 apiece, up 3 per cent, on the BSE on Friday in an otherwise subdued market on expectation of higher growth in the financial year 2019-20 (FY20). It surpassed its previous high of Rs 776 touched on July 5, in the intra-day deal.

The stock of the insurance company was trading at its highest level since October 3, 2017. In comparison, the S&P BSE Sensex was trading flat, up 0.09 per cent at 38,855 points at 11:32 am.

Thus far in FY20, SBI Life Insurance has outperformed the market by surging 34 per cent on strong buying from institutional investors. During the same period, the benchmark index was marginally up by 0.50 per cent.

According to the shareholding pattern data, institutional investors, led by foreign portfolio investors (FPIs) and mutual funds, have increased their stake in the company by 714 basis points (bps) to 25.56 per cent in the June quarter. They held 18.42 per cent at the end of March 2019 quarter.

BNP Paribas Cardif, the foreign partner of SBI Life Insurance, has sold 25 million shares representing 2.5 per cent stake in the insurance company. Following the sale, its holding dropped to 5.2 per cent from 7.7 per cent earlier.

Driven by better growth outlook, an extensive distribution reach, improving traction in protection and margin upside, analysts at Deutsche Bank have ‘buy’ rating on SBI Life Insurance with 12-month target price of Rs 830 per share.

“FY20 has begun on an encouraging note with first 2 months (April and May) of total annual premium equivalent (APE) growing at 47 per cent year-on-year (YoY). Similar trends are sustaining in June as well. First 2 months generally form 7-8 per cent of full year total APE and we do not impute such supernormal growth to full year. Nonetheless, the start to the fiscal year has been strong. SBI Life expects protection segment to witness stronger growth and gain share in overall product mix,” the brokerage firm said in the company update.

The management sounded confident of achieving higher growth in FY20, with overall industry growth also looking better- a view shared by other private peers as well. While protection share will rise, management expects lower-margin return on premium (RoP) products to decline in protection mix. It expects Value of New Business (VoNB) margin to expand by around 100bps in FY20, it added.

“SBI Life is the largest private sector insurer with around 13 per cent market share. Considering its strong distribution network in both the agent (around 125K persons) and bancassurance channel, ULIP which accounted for 53 per cent of FY19 first year premium, is likely to benefit from cost efficiencies/operating leverage with rising scale,” analysts at JP Morgan said insurance sector update.

Additionally, Embedded Value (EV) growth could accelerate as the company is targeting to improve its protection sales contribution, which should enhance the NBV product margin as well, it added. The brokerage firm has 'overweight' rating on SBI Life with 12-month target price of Rs 1,000 per share.