HDFC Standard Life Insurance Company Ltd - IPO Note

Issue Opens- November 7, 2017

Issue Closes- November 9, 2017

Face Value- Rs 10

Price Band- Rs 275- 290

Issue Size – ~Rs 8,695 cr

Public Issue: ~29.98 cr shares (at upper price band)

Bid Lot- 50 Equity shares              

Issue Type- 100% Book Building

Source: RHP

Company Background

HDFC Standard Life Insurance Company Ltd were one of the most profitable life insurers, based on Value of New Business (VNB) margin, among the top five private life insurers in India (measured on total new business premium) in FY16 and FY17, according to CRISIL. Besides, consistently being among the top three private life insurers in terms of profitability based on VNB margin, the company has also consistently been among the top three private life insurers in terms of market share based on total new business premium over FY15-17, according to CRISIL. The company’s total new business premium for FY17 and H1FY18 was ~Rs 8,696 cr and ~Rs 4,403 cr. respectively. The company has a healthy balance sheet with total net worth of ~Rs 4,460 cr and a solvency ratio of 200.5% as at September 30, 2017, above the minimum 150% solvency ratio required under IRDAI regulations. As at September 30, 2017, the company had total AUM of Rs 99,530 cr and Indian embedded value of Rs 14,010 cr. As at September 30, 2017, the company’s product portfolio comprised 32 individual and 10 group products.

Objects of the Issue

The purpose of the offer is to carry out the sale of offered shares by the existing shareholders (HDFC Ltd and Standard Life Mauritius Holdings Ltd). The listing of equity shares will enhance the HDFC Life brand name and provide liquidity to the existing shareholders. HDFC Life Insurance Company will not receive any proceeds from the offer.

Key Points

1. The company’s focused execution has continued to deliver consistent and profitable growth. It has a healthy balance sheet and delivered a return on equity of 25.6%, return on invested capital of 40.7% and operating return on embedded value of 21.7% during FY17. As at September 30, 2017, it had a solvency ratio of 200.5%, above the minimum 150% solvency ratio required under IRDAI regulations. Over FY15-17, its overall total premium grew by a CAGR of 14.5% to Rs 19,445 cr, driven by a CAGR of 12.6%, 43.6% and 7.3% in individual new business premiums, group new business premiums and renewal premiums, respectively. The company improved its VNB margins from 18.5% to 22.0% over FY15-17 by improving cost efficiencies, increasing its persistency ratios and selling a balanced product mix. Its share of protection in the individual and group new business premium increased from 12.0% in FY15 to 21.8% for FY17.

    

2. The company offers its individual and group customers access to its products through their diversified distribution network which comprises four distribution channels, namely bancassurance, individual agents, direct, and brokers & others. The company’s distribution model within each distribution channel gives them a significant footprint across customer segments. As a result its focus on customer needs and distribution efficiencies, they have managed to build economies of scale across most of their distribution channels, while consistently maintaining profitability for each distribution channel over FY15-17 and H1FY18.

    

3. HDFC and Standard Life Mauritius respectively hold 61.21% and 34.75% of HDFC Life Insurance Company equity shares (pre-offer). Over the years, the HDFC group has emerged as a recognised financial services conglomerate and was ranked as one of the best Indian brands in 2014 (according to Interbrand). We believe that the company has strong brand recall among Indian consumers.

Key Risk

As is customary in the life insurance industry, the company’s product pricing is based on assumptions and estimates for future claim payments and these assumptions are derived from the company’s historical experience. If the company’s actual claim payments are higher than expected, then the financial results from their operations could be adversely affected. 

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