The brokerage further notes that SBI Life has one of the lowest cost structures amongst peers. Interestingly, the company has steadily reduced its total expenses as a percentage of the gross written premium (GWP) from 15.9 per cent in FY13 to 9.9 per cent in FY20, led by its strong bancassurance channel.
Further, SBI Life has lower bancassurance commission rates (v/s peers), which allows it to maintain strong control on cost ratios, the brokerage adds.
MOFSL expects the company to maintain its cost leadership with GWP remaining at nearly 10 per cent over FY23E. This would help SBI Life maintain higher margins on its products (v/s peers) and improve profitability. It expects SBI Life to deliver profit after tax (PAT) CAGR of 15 per cent over FY20-23E.
The brokerage, however, says that FY21E will be a weak year for SBI Life in terms of premium growth and muted value of new business (VNB) trends. However, premium growth should rebound from FY22E.
"Overall, we expect an operating return on embedded value (ROEV) to normalise toward 18 per cent levels with Embedded Value (EV) reflecting 16 per cent CAGR over FY20-23E. Thus, we value the company at Rs 1,000/share based on 2.8x FY22E EV. We initiate coverage on SBILIFE with a Buy rating," MOFSL said in a report dated September 1.
Recently, NSE Indices, a subsidiary of the National Stock Exchange (NSE) announced that SBI Life along with Divi's Lab will enter the Nifty50 index from September 25, 2020.
For the quarter ended June 2020, SBI Life had reported a 5 per cent increase
in net profit at Rs 390 crore. The private sector life insurer, promoted by the country's largest lender SBI, had posted a net profit of Rs 370 crore during the corresponding April-June period of 2019-20. The company's gross written premium during Q1 FY21 rose by 14 per cent to Rs 7,640 crore as against Rs 6,690 crore in the same quarter of the preceding fiscal.