SBI Life Insurance, a joint venture between country's largest lender State Bank of India (SBI) and BNP Paribas Cardif (BNPPC) - the insurance holding company of France, is going public today with an aim to raise up to Rs 8400 crore. The price range for SBI Life Insurance IPO has been fixed at Rs 685 to Rs 700 per share.
The initial public offer (IPO) of the private life insurance firm will end on September 22.
During the initial public offer (IPO), State Bank of India (SBI) will dilute up to 8 crore shares while BNP Paribas Cardif SA will offload up to 4 crore shares.
After the listing of ICICI Prudential Life Insurance last year, SBI Life will become the second life insurer to go public.
We look at the recommendations of brokerages and analysts on the IPO.
Diversified product portfolio, high solvency and persistency makes SBI Life's business more predictable: SBI Life has a well balanced portfolio (ULIP - 50.5%, non participating - 34.7% and participating - 15.4%) and is well capitalised with a solvency ratio of 211% (mandatory - 150%). This will ensure growth without dilution in the coming years, boosting the return on equity (RoE) from current level of 17%.
Strong premium growth has resulted consistent market share gain: SBI Life has been reporting strong growth in New Business Premium, with 38.9% growth in FY2017 and 3 year compounded annual growth rate of 28.3% compared with industry growth rate of 26.2% and 13.5%, respectively.
SBI Life with its strong brand name and wide distribution network is one of the best plays for Indian Life Insurance industry. At the upper price band of Rs 700, the issue is offered at 4.2 times its Embedded Value of Rs 16,538 crore, little higher than 3.8 times for ICICI Prudential.
The premium valuation for SBI is justified due to its higher incremental market share gain, and hence we recommended investors to "SUBSCRIBE" to the issue with long term perspective.
The brokerage has recommended 'Subscribe' to the issue only with a long-term perspective, given high valuation.
"The company has a wide distribution network consisting of bancassurance channel which includes State Bank, 95,177 individual agents, corporate agents and brokers etc. SBI Life's NBP and PAT has grown at a CAGR of 35.5% and 8.24% respectively over FY15-17. Over the years the company has been continuously focusing on customer satisfaction, its death claims settlement ratio improved from 92.3% in FY15 to 97.9% in FY17, which is one of the best among the peers. The company has the lowest expense ratio in the industry and it has further increased to 7.8% in FY17 from 9.1% in FY15."
"SBI Life has a strong capital position with a solvency ratio of 204% as of FY17 compared to the IRDAI mandated solvency ratio of 150%. SBI Life had an Embedded Value (EV) of Rs 16,538 crore as on FY17 with an operating RoEV of 23% (EV is a common valuation measure in the insurance industry which measures potential future profits from existing business). At upper price band of Rs 700, SBI Life is available at P/EV of 4.2 times on FY17 EV. We believe SBI Life commands a premium valuation over its peers on account of its leadership position and better financial parameters," the brokerage said in a note.
The firm considers the IPO a healthy investment opportunity owing to multiple tailwinds. "Being the market leader in new business premium, we expect SBI Life to be a key beneficiary of strong growth in Indian life insurance industry over the next few years owing to low life insurance penetration, rising income level and higher preference for financial assets (such as insurance)."
"At higher price band of Rs700, the Issue is priced at 4.2x Embedded Value of Rs165.4bn of FY17, which in our view is reasonable as its operating RoEV of 23% is the best among large private sector life insurers. We recommend SUBSCRIBE to the Issue, as in our view it provides healthy investment opportunity for the long-term investors, " the brokerage said in a note.
Hem Securities has given a 'subscribe' recommendation to the IPO.
"The company is bringing the issue at P/E multiple of 55-56 on post issue Q1FY18 annualized earnings per share (EPS) of Rs 12.54. At the upper band, the firm is trading at P/EV multiple of 4.23x which is slightly higher. Although company has enjoyed superior growth but looking after valuation, we recommend "Subscribe" on issue for long term," is said in a note.
SMC Global Securities
Sounding a word of caution over high valuations, the brokerage said the offer may be suited only for long term investors. "SBI Life has seen robust growth in premium income during the past financial year and has declared dividends every year since fiscal 2012. It has also increased its market share of New Business Premium generated among private life insurers in India, from 15.87% in fiscal 2015 to 20.04% in fiscal 2017."
"As of July 31, 2017, SBI Life had a comprehensive product portfolio of 37 individual and group products (of which eight products are group products), including a range of protection and savings products to address the insurance needs of diverse customer segments. Considering all these aspects, it is expected that company would see good growth going forward. However the issue looks expensive. A long-term investor may opt for the issue," opined SMC's research note.
Choice Broking has advised investors to 'Subscribe with caution'. "In December 2016, SBI Life Insurance sold a minority stake of 3.9% to two investors for a consideration of Rs 1800 crore. At an FY16 Indian Embedded Value (IEV) of Rs 13000 crore and an P/IEV of 3.5x, the firm was valued to around Rs 45,500 crore. Currently, at the higher price band, the company is demanding a valuation of Rs 70000 crore, that is an P/IEV of 4.2x on an FY17 IEV of Rs 16,180 crore."
"The demanded valuation is at a steep premium of around 54% to the December 2016 transaction and the demanded P/IEV of 4.2x is too higher as compared to the trading range of 3.5-4.4x of ICICI Prudential Life Insurance Company Ltd. We feel that steep valuation has left limited room for price appreciation for the retail investors," said its research report.
SPTulsian.com said marquee pedigree, strong distribution reach, superior product mix and healthy growth make the company a worthy investment stock. Despite a not-the-most attractive price, the issue is a 'subscribe' and should be held for the long term just like any life insurance policy, the firm said.
Asit C Mehta
The stock is fairly priced at the upper end of the price band and recommends 'subscribing' to the issue from a long-term perspective. The brokerage said the company has a strong business model with multi-channel network, a well recognised brand and diversified product portfolio.
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