Recently listed SBI Life Insurance has a potential to rise over 20 percent from current levels, according to brokerage firm Citi Research driven by franchise strengths.
Life insurance is a retail financial services product with significant under penetration in India. With the shift towards financial savings which is under way, we believe that the life insurance sector should deliver healthy growth and within that, better private-sector companies such as SBI Life could grow much faster.Citi Research Report
The research firm initiated a ‘Buy' rating on the stock and set a price target at Rs 800. Currently, the stock is trading at Rs 670, nearly 5 percent discount to its issue price.
“SBI Life looks well positioned to capitalise on the increasing share of financial savings in India. Strong premium growth, improving persistency and cost ratios, and rising share of protection should drive operating return on equity of about 19 percent, which should sustain premium valuations,”
The brokerage house expects 200 basis points improvement in the value of new business margin by March 2020. It also forecasts value of new business to grow at a compound annual growth rate of 32 percent.
Citi lists regulatory changes, which are increasing compliance costs, competitive intensity leading to lower profitability, and volatile capital markets impacting investment returns as key risks for the insurer.
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