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SBI Life’s valuation comes under pressure as BNP Paribas exits

SBI Life Insurance Company Ltd’s shares recently touched their 52-week high after having gained 5% since January. (Reuters)Premium
SBI Life Insurance Company Ltd’s shares recently touched their 52-week high after having gained 5% since January. (Reuters)

BNP Paribas Cardiff has reportedly launched a share sale to offload at least 3.5% of its stake in the life insurer. But the valuation even at the upper end of the price band of 870-917 per share is lower than the market value as of Wednesday

India’s largest private sector life insurer has been riding the rally in equity markets this year, not without reason. SBI Life Insurance Co. Ltd’s shares recently touched their 52-week high, after having gained 5% since January. One of the reasons is the healthy recovery in business growth reported by the life insurer.

But a stake sale by its long-standing promoter BNP Paribas Cardif has put a temporary pressure on valuations. According to a 10 March Bloomberg report, BNP Paribas Cardif has launched a share sale to offload at least 3.5% of its stake in the life insurer.

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But the valuation even at the upper end of the price band of 870-917 per share is lower than the market value as of Wednesday. Multiple block deals aggregating to 55 million shares of the life insurer were reported on exchanges on Friday and the share price has dropped over 2%.

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Going strong

The foreign promoter has stuck around for two decades with SBI Life after setting up the company through a joint venture with State Bank of India (SBI) in 2001. To be sure, BNP Paribas Cardif has been paring its stake in the life insurer for long now and its plan to exit was well known. It owned 5.2% of stake in SBI Life as of December.

Despite this temporary pressure, analysts see scope for valuations to improve given that business performance remains healthy. Data from the sector regulator showed that in February, SBI Life reported 53% growth in its retail business on an annualized premium equivalent (APE) basis.

To be sure, the growth was helped by a low base. But analysts at Jefferies India Pvt. Ltd noted that February is typically a slower growth month for SBI Life.

Most analysts have a buy rating on the shares of the life insurer and believe that valuations are modest. Shares currently trade around 3 times estimated embedded value for FY22, which is lower than HDFC Life Insurance Co. Ltd’s multiple of five times.

SBI Life’s business growth, and more importantly its profitability metrics, have buttressed its valuations so far. For the December quarter, the insurer had reported 23% growth in value of new business.

Margins too have improved and the launch of new products during the year augurs well for growth in the coming months. The management has also indicated further improvement in business growth in the fourth quarter.

That said, there is another threat to not just the valuation of SBI Life but also other private sector life insurers.

The country’s largest insurer Life Insurance Corp. of India (LIC) will likely get listed in FY22.

While private sector life insurers have been eating into LIC’s market share, the latter remains a formidable player.

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