SBI Life: Nomura retains 'Buy' and top pick status, cuts target price to Rs 2,340

Total annualised premium equivalent (APE) grew 7.4% year-on-year in Q2FY27, led by non-participating products, which rose 27%, annuity products, up 28%, and individual protection, up 14%. Nomura said the scale-up in high-margin products was a key driver of the expansion in VNB margins. Q3 becomes a critical quarter for growth SBI Life Insurance's individual APE growth stood at 12% year-on-year in the first half of FY27, below its full-year guidance of 14-15%.

However, management reaffirmed its growth guidance, with the third quarter typically a strong period for the insurer, driven by the bancassurance channel. Nomura expects APE to grow 16% and VNB to rise 17% year-on-year in FY27. It believes sustained momentum in non-par products, annuity and individual protection could support VNB margins of 26-29% in Q3 and Q4FY27, translating into a 27.6% margin for the full year.

Non-par and annuity products offer support Nomura expects non-par guaranteed products to see stronger demand over the next couple of quarters amid a sharp rise in benchmark yields. SBI Life's management indicated that it had already increased guarantee rates and that the pickup in these products through the agency channel had been encouraging. The company is also set to launch a new annuity product.

Regulatory exposure and valuation SBI Life's stock has declined 20% year-to-date, compared with a 13% fall in the Nifty, largely due to concerns over distribution reforms. According to management, SBI Life is the least impacted by the regulator's consultation paper. Nomura rolled forward its valuation to September 2027 and raised its risk-free rate assumption to 7.25% from 6.25%, taking its cost of funds to 13.9%.

This led to a reduction in the target price to Rs 2,340, implying 1.9 times September 2028 embedded value. The brokerage cited a return on embedded value of 18.8% as of September 2026 and its 17% VNB growth estimate as reasons to remain positive on the stock. SBI Life currently trades at 1.5 times one-year forward price-to-embedded-value. Nomura flagged the risk that lower commission structures under distribution reforms could intensify competition in SBI Life's home market, particularly from large urban-focused players.