Shares of SBI Life Insurance dropped over 5 percent to Rs 1,624 on October 24, following a weaker-than-expected performance in the September quarter. The company’s results fell short of market expectations, with key metrics such as Annual Premium Equivalent (APE) and Value of New Business (VNB) coming in 11 percent and 14 percent below Street estimates, respectively.
Adding to the disappointment, the VNB margin contracted by 160 basis points year-over-year to 26.9 percent in Q2FY25. Analysts attributed the margin compression to an unfavorable shift in the business mix, driven by increased traction towards linked and participating (PAR) products, which tend to have lower margins.
Despite the subdued performance, brokerages remain optimistic about SBI Life's growth prospects, pinning hopes on product innovation, investments in distribution channels, and digital initiatives. Motilal Oswal reiterated its 'buy' rating with a target price of Rs 2,100 per share.
The brokerage expressed confidence that the launch of new products will help revive the protection segment, a critical driver of profitability, while sustained investments in agency channels and digital enhancements are expected to boost growth. Motilal Oswal projects that SBI Life will achieve an 18 percent compound annual growth rate (CAGR) in APE and VNB over FY24-27, with a Return on Embedded Value (RoEV) stabilising around 20 percent by FY27.
HDFC Securities also maintained its bullish outlook, issuing a high-conviction ‘buy’ call with a target price of Rs 2,020 per share. Analysts highlighted three key factors supporting their optimism: the insurer’s exclusive access to SBI’s extensive distribution network, with branch penetration at approximately 2 percent; opportunities to shift towards more traditional, margin-accretive products; and a competitive edge in cost efficiency, particularly in its expense-to-APE ratio compared to peers.
Similarly, UBS reaffirmed a 'buy' rating on SBI Life with a target price of Rs 1,940, underscoring the potential impact of the company’s recent product launches. While these new products, particularly in the pure protection space, were introduced late in the quarter, the brokerage expects their benefits to become evident from Q3FY25 onwards.
UBS also noted encouraging improvements in persistency across various customer cohorts, excluding the 37th-month metric, reflecting enhanced customer retention.
Although the Q2 results highlighted some near-term challenges, including pressures on margins due to changes in product mix, analysts remain confident in the insurer’s long-term trajectory.
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