Mumbai: With SBI Life Insurance Co. Ltd’s Rs8,400 crore initial public offering (IPO) set to hit the market on Wednesday, analysts said that the issue is fairly priced and investors should park their funds from a long-term perspective.
SBI Life Insurance’s IPO will be the biggest to hit the market since Coal India Ltd’s issue in October 2010. It is also the fourth-largest IPO by issue size.
It has a price band of Rs685-700 per share. The IPO will see SBI and its joint venture partner BNP Paribas Cardif SA sell 8% and 4% of their stakes in the life insurance firm. At the upper end of the price band, SBI will get Rs5,600 crore from its stake sale, while BNP Paribas Cardif will earn Rs2,800 crore.
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SBI Life is India’s largest private life insurance firm in terms of new business premium (NBP) generated each fiscal year since FY10. It has also increased its NBP market share among private life insurers in India from 15.87% in fiscal year 2015 to 20.04% in fiscal year 2017.
According to Asit C Mehta Investment Interrmediates Ltd, at the upper price band, the asking price is at a P/EV (price/embedded value) of 4.1 times at FY17 EV of Rs16,538 crore, which is fairly priced, and the brokerage recommended a subscribe rating to the issue from a long-term perspective.
Embedded value is the measure of the consolidated value of shareholders’ interest in the covered life insurance business, which is all the life insurance business written by the company since inception and in force as on the valuation date. It also includes lapsed business which has the potential of getting revived.
“We believe the Indian life insurance industry is in a phase of high growth and slower penetration will ensure the growth remaining higher for next couple of years. SBI Life with its strong brand name and wide distribution network is one of the best plays for Indian life insurance industry," Angel Broking Pvt. Ltd said. It pointed out that at the upper price band of Rs700, the issue is offered at 4.2 times its embedded value of Rs16,538 crore, a little higher than 3.8 times for ICICI Prudential Life Insurance Co. Ltd.
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Between fiscal years 2015-2017, SBI Life’s generated NBP increased at a CAGR (compounded annual growth rate) of 35.45%, which is the highest among the top five private life insurers, in terms of total premium in FY17.
“We believe 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 a long-term perspective," Angel Broking analyst Jaikishan J. Parmar said.
Subscribing with the intention of making listing gains, however, may not be a good idea.
“We believe the company will be able to attract adequate investor interest on the basis of its leadership position and expected healthy growth compared to peers," Centrum Broking Ltd said in a note on 18 September.
“Given that the current valuations are mature, investors can subscribe to the issue from a long-term perspective. However, it must be noted that, insurance being a steady business, it may not attract major listing gains," Centrum analysts Payal Pandya and Siddhartha Khemka said in the note.
SBI Life Insurance was incorporated in 2001 and offers a range of life insurance and pension products. As of 30 June, it had a portfolio of 37 individual and group products, including a range of protection and savings products to address the insurance needs of diverse customer segments. The life insurer had assets under management (AUM) of Rs97,736.6 crore as of 31 March. It reported a profit of Rs954.65 crore in financial year 2016-17.