SBI Life Insurance IPO

Nikita Bhoota

20 Sep 2017

Issue Opens: September 20, 2017

Issue Closes: September 22, 2017

Face Value: Rs 10

Price Band: Rs 685-700

Issue Size: Rs 8,400 cr

Public Issue: 12 cr shares (at upper price band)

Bid Lot: 21 Equity shares

Issue Type: 100% Book Building

% shareholding Pre IPO Post IPO
Promoter 96.1 84.1
Public 3.9 15.9

Source: RHP

Company Background

SBI Life Insurance Company Ltd was established as a joint venture between State Bank of India and BNPPC (BNP Paribas Cardif S.A) in 2001. Since FY10, the company is India’s leading private life insurer in terms of new business premium generated. It has a market share of 11.16% in FY17 in terms of individual rated premium among the life insurance industry in India. The company has a comprehensive product portfolio of 37 products (individual and group products), which includes protection and savings products. Its individual products include participating products, non-participating protection products, other non-participating products and unit linked products, which contributed 10.77%, 0.95%, 1.69% and 50.36% respectively, of its new business premium in FY17. SBI Life AUM for FY17 stands at Rs 97,737 cr which is second largest AUM among top five private life insurers (in terms of total premium) in India.

Objective of the Offer

The listing of equity shares will enhance the ‘SBI Life’ brand name and provide liquidity to the existing shareholders. The company will not receive any proceeds from the offer.

Key Investment Rationale

  • SBI Life is the largest private life insurer with a consistent track record of rapid growth. Over FY15-17 its new business premium has increased at 35.45% CAGR, which is the highest among the top five private life insurers in India. Its market share in new business premium over FY15-17 has increased by 417 bps to 20.04% (among private life insurers in India). Its AUM has increased from Rs 71,339 cr to Rs 97,737 cr over FY15-17 (second highest among top five private life insurers).

  • The company has a strong capital base (sufficient for next 3 years) to support AUM growth. SBI Life has maintained its solvency ratio >2 over the last 5 years, and its solvency ratio stands at 2.04 as of March 31, 2017, (against 1.5 required by IRDA). It’s embedded value of ~ Rs 16,538 cr as of March 31, 2017 which is the highest among its peers. Its operating expense ratio has declined by 124 bps to 7.83% over FY15-17, which is the lowest among top five private life insurers. For Q1FY18, bancassurance (SBI) contributed ~60% of new business premium while the rest was through agencies.

  • India’s life insurance penetration is low at 2.7%* when compared to Asian counterparts such as Thailand, Singapore and South Korea where the life insurance penetration was 3.7%*, 5.5%* and 7.4%* as of 2015. A gradual growth in the economy, and structural drivers in place (rising life expectancy, increase in share of working population, healthcare spending, pension needs) will drive the insurance products consumption going forward.
    Note: * Company RHP

Key Risks

  • At the end of Q1FY18, 76.81% of their total investment assets were invested in debt securities. Any significant change in interest rates could materially affect their investment returns.

  • The catastrophic events like natural disasters or outbreak of infectious disease, which are unpredictable could result in increasing claims, hence could affect its profitability.

Conclusion

At upper end of the price band (Rs 700), the company is commanding P/EV multiple of 4.2x on its FY17 embedded value. Considering its superior track record and better prospects for future growth, we feel that the issue is attractively priced and hence we recommend SUBSCRIBE on the issue.

Have Referral Code?

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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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SBI Life Insurance IPO

Nikita Bhoota

20 Sep 2017

Issue Opens: September 20, 2017

Issue Closes: September 22, 2017

Face Value: Rs 10

Price Band: Rs 685-700

Issue Size: Rs 8,400 cr

Public Issue: 12 cr shares (at upper price band)

Bid Lot: 21 Equity shares

Issue Type: 100% Book Building

% shareholding Pre IPO Post IPO
Promoter 96.1 84.1
Public 3.9 15.9

Source: RHP

Company Background

SBI Life Insurance Company Ltd was established as a joint venture between State Bank of India and BNPPC (BNP Paribas Cardif S.A) in 2001. Since FY10, the company is India’s leading private life insurer in terms of new business premium generated. It has a market share of 11.16% in FY17 in terms of individual rated premium among the life insurance industry in India. The company has a comprehensive product portfolio of 37 products (individual and group products), which includes protection and savings products. Its individual products include participating products, non-participating protection products, other non-participating products and unit linked products, which contributed 10.77%, 0.95%, 1.69% and 50.36% respectively, of its new business premium in FY17. SBI Life AUM for FY17 stands at Rs 97,737 cr which is second largest AUM among top five private life insurers (in terms of total premium) in India.

Objective of the Offer

The listing of equity shares will enhance the ‘SBI Life’ brand name and provide liquidity to the existing shareholders. The company will not receive any proceeds from the offer.

Key Investment Rationale

  • SBI Life is the largest private life insurer with a consistent track record of rapid growth. Over FY15-17 its new business premium has increased at 35.45% CAGR, which is the highest among the top five private life insurers in India. Its market share in new business premium over FY15-17 has increased by 417 bps to 20.04% (among private life insurers in India). Its AUM has increased from Rs 71,339 cr to Rs 97,737 cr over FY15-17 (second highest among top five private life insurers).

  • The company has a strong capital base (sufficient for next 3 years) to support AUM growth. SBI Life has maintained its solvency ratio >2 over the last 5 years, and its solvency ratio stands at 2.04 as of March 31, 2017, (against 1.5 required by IRDA). It’s embedded value of ~ Rs 16,538 cr as of March 31, 2017 which is the highest among its peers. Its operating expense ratio has declined by 124 bps to 7.83% over FY15-17, which is the lowest among top five private life insurers. For Q1FY18, bancassurance (SBI) contributed ~60% of new business premium while the rest was through agencies.

  • India’s life insurance penetration is low at 2.7%* when compared to Asian counterparts such as Thailand, Singapore and South Korea where the life insurance penetration was 3.7%*, 5.5%* and 7.4%* as of 2015. A gradual growth in the economy, and structural drivers in place (rising life expectancy, increase in share of working population, healthcare spending, pension needs) will drive the insurance products consumption going forward.
    Note: * Company RHP

Key Risks

  • At the end of Q1FY18, 76.81% of their total investment assets were invested in debt securities. Any significant change in interest rates could materially affect their investment returns.

  • The catastrophic events like natural disasters or outbreak of infectious disease, which are unpredictable could result in increasing claims, hence could affect its profitability.

Conclusion

At upper end of the price band (Rs 700), the company is commanding P/EV multiple of 4.2x on its FY17 embedded value. Considering its superior track record and better prospects for future growth, we feel that the issue is attractively priced and hence we recommend SUBSCRIBE on the issue.

Have Referral Code?