SBI Life Insurance IPO review (Apply)

SBI Life Insurance Co. Ltd. (SBI Life) is a life insurance arm of SBI group that is coming out with a public offer after 23 years gap. Last issue was in 1994 for SBI.

SBI Life India’s largest private life insurer, in terms of New Business Premium generated in each fiscal year, since Fiscal 2010. It has also increased its market share of New Business Premium generated among private life insurers in India, from 15.87% in Fiscal 2015 to 20.04% in Fiscal 2017. Between Fiscal 2015 and Fiscal 2017, SBI Life’s New Business Premium generated increased at a CAGR of 35.45%, which is the highest among the top five private life insurers (in terms of total premium in Fiscal 2017) in India.

In Fiscal 2017, the company enjoyed a market share of Individual Rated Premium of 20.69% among private life insurers in India and 11.16% of the entire life insurance industry in India. Between Fiscal 2015 and Fiscal 2017, its Individual Rated Premium increased at a CAGR of 37.90 %, the highest among the top five private life insurers and has also issued the highest number of individual life policies annually among the top five private life insurers in India since Fiscal 2014.

SBI Life was established as a joint venture between the State Bank and BNPPC in 2001. As of March 31, 2017, State Bank was India’s largest commercial bank in terms of deposits, advances and number of branches. Following its recent merger with certain of its associate banks and a non-affiliate bank, with effect from April 1, 2017, State Bank had 24,017 branches and 195 international offices in 36 countries and more than 420 million customers that will be geared up in marketing channel before this fiscal end. BNPPC, an insurance subsidiary of BNP Paribas, with operations across 36 jurisdictions internationally, is among the leading credit life insurance businesses globally. BNP Paribas was a top 10 global financial institution in terms of revenues in 2016.

As of July 31, 2017, SBI Life had a comprehensive product portfolio of 37 individual and group products (of which eight products are group products), including a range of protection and savings products to address the insurance needs of diverse customer segments. It has strong solvency ratio of 2.11 x as on 30.06.17 as against regulatory minimum of 1.50 x.Its 11.6% expense ratio is lowest amongst the peers.

SBI Life is coming out with a maiden IPO by way of offer for sale of 120000000 equity share of Rs. 10 each via book building route with a price band of Rs. 685-700 per share. Out of the total issue it has reserved 2000000 equity shares for eligible employees and 10 per cent i.e. 12000000 equity shares for the share holders of SBI. Issue opens for subscription on 20.09.17 and will close on 22.09.17. Minimum application is to be made for 21 shares and in multiples thereon, thereafter. With this issue, SBI Life hopes to mobilize Rs. 8220 crore to Rs. 8400 crore (based on lower and upper price bands). Employees are offered a discount of Rs. 68 per share. The offer would constitute up to 12% of post offer paid up capital of the company. Post allotment, shares will be listed on BSE and NSE. BRLMs to the offer are JM Financial Institutional Securities Ltd., Axis Capital Ltd., BNP Paribas, Citigroup Global Markets India Pvt. Ltd., Deutsche Equities India Pvt. Ltd., ICICI Securities Ltd., Kotak Mahindra Capital Co. Ltd. and SBI Capital Markets Ltd. Karvy Computershare Pvt. Ltd. is the registrar to the issue. It’s paid up equity capital will remain same at Rs. 1000 crore post issue. This is the second IPO from the Life Insurance Company on Indian bourses. It has issued entire equity at par so far. Object of the issue is to list on bourses and unlock value for its stakeholders.

On performance front, SBI Life has reported total income/net profits of Rs. 17369.42 cr. / Rs. 727.75 cr. (FY14), Rs. 23186.49 cr. / Rs. 814.87 cr. (FY15), Rs. 19119.72 cr. / Rs. 844.10 cr. Rs. 30277.51 cr./ Rs. 954.65 cr. (FY17). For Q1 of the current fiscal it has reported net profit of Rs. 313.45 cr. on a total income of Rs. 6388.37 crore. If we annualize the latest earnings and attribute on the post issue equity then asking price is at a P/E of around 55. For last three years it has posted an average EPS of Rs. 8.95 and average RoNW of 19.35%. Issue is priced at a P/BV of 11.90. Thus issue is fully priced compared to its only listed peer ICICI Prudential.

On BRLM’s front, 8 BRLMs associated with the offer have handled 56 public issues in past three years out of which 16 issues closed below the issue price on listing date.

Conclusion: Life insurance sector is expected to fare better. Investment may be considered for long term.