Life insurance sector earnings review: Brokerages remain positive on these two stocks

Updated : January 24, 2020 03:56 PM IST

This quarter, SBI Life Insurance outperformed ICICI Prudential Life Insurance and HDFC Life Insurance, in terms of solid earnings.

SBI Life’s net profit ballooned 47 percent year-on-year (YoY) to Rs 389.76 crore as against Rs 264.28 crore in the same quarter last year.

Even in terms of net premium income, SBI Life continued to lead the race followed by HDFC Life and ICICI Pru.

Even as 2019 remained one of the worst years for the equity indices, life insurance sector witnessed a healthy rally as investors considered it to be a safe place to park their money. HDFC Life Insurance, SBI Life Insurance, and ICICI Prudential Life Insurance recently declared their October-December quarter earnings of the financial year 2019-20.

SBI Life Insurance outperformed ICICI Prudential Life Insurance and HDFC Life Insurance, in terms of solid earnings, in the third quarter. SBI Life’s net profit ballooned 47 percent year-on-year (YoY) to Rs 389.76 crore as against Rs 264.28 crore in the same quarter last year. In comparison, ICICI Pru and HDFC Life posted net profit of 1.92 percent YoY and 1.88 YoY, respectively.

Even in terms of net premium income, SBI Life continued to lead the race followed by HDFC Life and ICICI Pru.

In terms of valuations, price-to-earnings ratio (P/E) of all the 3 stocks remained above sector P/E of 57.25x. According to the Screener data, HDFC Life (92.28x) was the most expensive stock to buy from the sector followed by SBI Life (73.08x) and ICICI Pru (63.42x). Screener is a financial data provider.

Kotak Institutional Equities remained bullish on HDFC Life Insurance while Emkay and HDFC Securities placed their bets on SBI Life Insurance.

Kotak in its report said, “HDFC Life remains a highly profitable life insurance company with about 20-21 percent operating RoEV (Return on Enterprise Value) during FY2019-22E; this is supported by VNB margins of ~26 percent.”

It further added the company’s dynamic product strategy, effective execution and its distribution partnerships will continue to support superior medium-term profitability, commanding rich valuations even as near-term stock performance may be muted.

Hence, the brokerage retained a positive stance on the stock with fair value of Rs 615 (up from Rs 605).

Meanwhile, Emkay maintained a ‘buy’ call on SBI Life saying, “We expect 19.9 percent APE growth over the next three years, with non-par savings/protection growing 57.8 percent /36.3 percent over FY19-FY22E. VNB is expected to see 24.5 percent CAGR over FY19-FY22E. EV is expected to register 17.5 percent CAGR over the same period.”

The company’s management said that it would reiterate focus on protection, annuity, and non-par savings product.

Given the strong distribution footprint of its parent SBI (24,000 branches), improving protection share (M9FY20: 8 percent, +174bps YoY), lowest operating cost ratios (9.1 percent), and improving margins, we expect SBI Life to deliver strong FY19-22E VNB CAGR of 23.3 percent p.a. and RoEVs of ~18-18.5 percent, added HDFC Securities.

The brokerage placed a ‘top buy’ call on the stock with a target price at Rs 1,230 per share.

Life insurance sector earnings review: Brokerages remain positive on these two stocks

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