SBI Life stock dips 3% post Q3 results; analysts lower target price

Shares of SBI Life Insurance were down 3 per cent at Rs 1,487.70 on the BSE in Monday’s intra-day trade in an otherwise firm market as the management cut its annualised premium equivalent (APE) growth guidance for FY25E to 11 per cent as they believe growth shall continue to be sluggish in the bank channel, analysts at Nuvama Institutional Research said.

 

The stock of the largest private sector life insurer wiped out its entire past two-day 5 per cent gain recorded post HDFC Life Insurance strong December quarter (Q3FY25) results. In the past one month, the stock had rallied 10 per cent till Friday.

 

At 02:45 PM; SBI Life was quoting 2.7 per cent lower at Rs 1,499.20, as compared to 0.75 per cent rise in the BSE Sensex. The stock had hit a 52-week high of Rs 1,935 on September 3, 2024.

 

In Q3 FY25, SBI Life reported a 71.22 per cent year-on-year (YoY) rise in net profit to Rs 550.8 crore from Rs 321.7 crore in the corresponding period a year ago.

 

The value of new business (VNB) - the present value of the future profits expected to come from new policies sold during a given year  - rose by 11.3 per cent YoY to Rs 1,870 crore in Q3 against Rs 1,680 crore in the year-ago period. The insurer’s VNB margin, a measure of profitability for life insurance companies, remained at 26.9 per cent in Q3 FY25, compared to 27.4 per cent in the corresponding period a year ago. In Q2 FY25, the margin also stood at 26.9 per cent.

 

Its new business premiums (NBP) increased by 8.11 per cent YoY to Rs 10,530 crore in Q3 FY25, compared to Rs 9,740 crore in the year-ago period. Its APE rose by 13.2 per cent YoY to Rs 6,940 crore. APE is the sum of annualised first-year regular premiums and 10 per cent weighted single premiums and single premium top-ups.

 

The management maintained its growth guidance at 15-17 per cent in medium term. Banca channel to grow at ~10 per cent while agency channels to drive higher traction. VNB margin targeted at 27-29 per cent in medium term with focus on efficiency and control on opex. Impact of surrender regulations to be seen, however, management confident of impact to be minimal, ICICI Securities said in a note.

 

For 9MFY25 VNB margin fell 120bp YoY to 26.9 per cent mainly due to a change in business mix (-170bp YoY), economic assumptions (-10bp YoY) and offset by improved operating assumptions (+60bp YoY).

 

For FY25E management reduced its total APE guidance to just 10–11 per cent YoY, along with VNB growth guidance of 7-10 per cent YoY. Over the medium-term management guided that it expected banca channel growth to stay tepid at ~8–10 per cent while it expects agency channel to grow at 25 per cent plus. Management said it had intensified its efforts to recruit agents and grow business through this channel. Overall, it expected VNB margins in the medium term in the 27–29 per cent range, analysts at Nuvama Institutional Research said in Q3 FY25 result update. However, the brokerage firm maintains its buy rating on SBI Life, while reducing the 12-month target price (TP) to Rs 1,890 per share from Rs 1,980 per share.

 

SBI Life reported a 13 per cent YoY growth in APE in Q3FY25 despite a high base of December 2024, driven largely by strong performance in the ULIP segment. Though APE growth picked pace in the bancassurance channel, it remained weak at 9 per cent YoY in Q3FY25, with the bulk of growth being driven by the agency channel, said analysts at Elara Capital.

 

The brokerage firm said it revised its target multiple for SBI Life from 2.3x P/EV to 1.9x, factoring in a 100bps increase in risk premium to account for potential regulatory scrutiny of the bancassurance channel given high exposure of SBI Life to the bancassurance channel and high dependence on the parent SBI.  So, analysts said they pare TP to Rs 1,760 (from Rs 2,040), based on December 2026E EV per share of Rs 923.

 

However, analysts at Emkay Global Financial Services upgrade SBI Life to BUY from Add with revised up December 2025E TP of Rs 1,850, implying FY26E P/EV of 2.3x.

 

Overall, 9M/Q3 numbers came in better than our estimates, on both – growth and margins. The growth and profitability trajectory looks predictable, with growth rebounding in the banca channel, performance of the agency channel improving, clarity on changes in surrender regulations, and limited impact, if any, from possible removal of the Section 80C exemption in the upcoming budget, the brokerage firm said in result update.

 

To bake in the Q3FY25 developments and management commentary, we increase our APE estimates by 3-4 per cent and VNB Margin by 50-60bps, resulting in ~5 per cent increase in VNB in FY25-27E. Key risks are unfavorable regulatory changes on the corporate or personal taxation front in the budget and slowdown in the banca channel, the brokerage firm said.