SBI Life Insurance IPO

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

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.