For SBI Life, though, it is blessed with a large country-wide branch network (over 24,000) of its parent – State Bank of India (SBI). SBI Life had generated 57 per cent of its new business premium (NBP) during April-September 2019 (H1FY20) through SBI's branch network. Although this could also be seen as a concentration risk, there is also huge room to grow through this channel.
According to HDFC Securities' analysts, even now, only 61 per cent of SBI's branches are activated. The domestic brokerage believes that branch activations will increase and the (business from) SBI channel will easily grow at 15-20 per cent annually over next 3-5 years. The analysts foresee a 25 per cent upside in the SBI Life stock from current levels. In FY19, SBI's network contributed Rs 3.8 million per branch (in terms of NBP, which SBI Life expects to increase to Rs 4.5 million in FY20. A combination of increased branch activation and higher contribution per branch, could help SBI Life growth at a good pace.
Even during April-November 2019, SBI Life clocked 22 per cent growth in new business sales (annual premium equivalent) and analysts expects it to rise by 18 per cent annually during FY19-FY22.
This apart, SBI Life also has the lowest cost ratio at 10.4 per cent in H1FY20 versus 11-23 per cent for other listed players. This along with a satisfactory persistence ratio (indicating policyholders’ stickiness) should help in terms of faster margin improvement. Rising demand for high-margin protection products such as term plans also augurs well for the sector.
Overall, long-term investors can consider the stock on dips.