- SBI Life's IPO is the biggest in India in last 7 years after Coal India
- It can be subscribed in lot sizes of 21 shares
- SBI Life has already raised Rs 2,226 crore from anchor investors
SBI Life Insurance Company's Rs 8,400 crore of $1.3 billion initial public offer (IPO), the biggest insurance IPO in India, opened for subscription today. SBI Life's IPO, also the biggest in India in last 7 years after Coal India, will give a valuation of Rs 70,000 crore to the life insurer backed by India's biggest lender SBI and BNP Paribas Cardif. SBI owns 70 per cent equity while BNP Paribas Cardif 26 per cent in SBI Life. Priced in a band of Rs 685 to Rs 700, SBI Life IPO can be subscribed in lot sizes of 21 shares, which means one has to shell out minimum Rs 14,385 (at Rs 685/share) to apply the IPO. The IPO will close on Friday (September 22). SBI Life has already raised Rs 2,226 crore from anchor investors. At 1:30 pm of Day 3, SBI Life Insurance Life was subscribed 1.47 times.
Here are 10 things to know about SBI Life Insurance IPO:
1) SBI Life does not intend to raise any fresh capital through this offer. This IPO is purely an offer for sale by both the promoters where SBI is selling 8 crore shares and BNP Paribas Cardif is selling 4 crore shares. Post this IPO, promoter's holding in SBI Life Insurance will come down to 84 per cent from 96 per cent now.
2) SBI Life Insurance company is the largest private life insurer in India in terms of new business premium generated with 20 per cent market share followed by HDFC Life and ICICI Prudential, who held 17.2 per cent and 15.5 per cent shares respectively in FY2017. SBI has been maintaining this leadership position since 2010, says Angel Broking quoting a Crisil report.
3) SBI Life Insurance company's new business premium growth, a key performance measurement metrics for insurers, was 38.9 per cent in FY2017 with last three year's compound annual growth rate (CAGR) remaining at 28.3 per cent compared Industry average of 13.5 per cent growth.
4) SBI Life's parent SBI has a mammoth network of around 24,000 branches, which has helped the company in generating new business premium on consistent basis, say analysts. SBI's strong branch network has also been instrumental in the strong asset under management (AUM) growth of 17.1 per cent over FY2015-17 compared to ICICI Pru's 10.7 per cent and HDFC Life's 16.9 per cent, says Angel Broking.
(SBI Life's AUM has grown at a CAGR of 17.1 per cent between FY15 to Q1 of FY18)
5) SBI Life has a diversified portfolio consisting of ULIP (50.5 per cent), non-participating policy (34.7 per cent) and participating policies (15.4 per cent). A non-participating policy does not receive dividends/interest/capital gains earned by the insurer on premiums paid.
7) Insurance industry is still under-penetrated in India with total sum assured as a percentage of country's GDP remaining at 70 per cent compared to 270 per cent in case of US, 260 per cent in Japan and 226 per cent in Singapore. Countries like Thailand and Malaysia have also better penetration ratio than India.
(Low insurance penetration in India shows higher potential for growth for insurance companies in India)
8) Angel Broking says Insurance industry in India will continue to witness healthy growth going ahead on account of low penetration, focus on financial inclusion, increasing insurable population, protection gap and rise in healthcare spending in India.
9) SBI Life reported a net profit of Rs 955 crore on total investment income of Rs 1,064 crore in FY2017. Its embedded value, a key valuation metrics for insurance companies, has grown from Rs 12,548 crore in FY2016 to Rs 16,538 crore in FY2017, showing a growth of nearly 32 per cent. At the upper price band of Rs 700, SBI Life shares are valued at 4.2 times its embedded value, compared to 3.8 times for its listed peer ICICI Pru Life Insurance Company. Angel Broking has a "subscribe" rating on the issue. "We believe the premium valuation for SBI (SBI Life Insurance) is justified due to its higher incremental market share gain...SBI Life with its strong brand name and wide distribution network is one of the best plays for Indian Life Insurance industry," Angel Broking said.
10) Bancassurance channel has contributed a major portion of SBI Life's new business premium in recent years (51.7 per cent, 60.7 per cent, 64.7 per cent and 65.6 per cent in 2015, 2016, 2017 and in Q1 of FY2018 respectively). Any termination or adverse change in bancassurance arrangement may impact the business growth of the company, which is a key risk in SBI Life's business, says Angel Broking. Abrupt changes in interest rate will also affect the profitability of the insurer and is a risk for the company.
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