SBI Life Insurance Company Ltd IPO - Should you subscribe?

In September 2017, first, non-life insurance company and now life insurance company is going to hit the primary market through its IPO. On  September 15,2017, ICICI Lombard's  IPO  opened and will close on September 19,2017. Please read ICICI Lombard General Insurance Company Ltd IPO Review

From the very next day closing of ICICI Lombard IPO, it's SBI Life insurance company's turn to make some noises in the market. Both have been much talked about IPOs among market analysts and investors. As I said earlier, September 2017 to be celebrated as an IPO month of 2017. This is the sixth IPO of the month. Much unknown name Capacit'e Infraproject IPO subscribed 182 times in the last week showing the potentials of primary market.

Issue Detail

SBI Life Insurance IPO is opening on September 20,2017 and closing on September 22,2017. Tentative date of listing is October 3,2017. You will get allotment status here http://karisma.karvy.com near September 27,2017.

Like ICICI Lombard, SBI Life Insurance IPO is also 100% OFS (Offer For Sale) by existing shareholders. SBI and BNPPC are selling 8,00,00,000 and 4,00,00,000 shares respectively. 35% is reserved for Retail Investors after Employee Reservations and State Bank Shareholders reservations. The summarised details is hereunder;
 

 

Again, like ICICI Lombard, the share price is steep leaving not much on investors' plates. SBI Life Insurance has set price range between ₹ 685 - ₹ 700. Average cost of acquisition of shares by  existing shareholders is Rs. 10 per share. The EPS of Fiscal 2017 is Rs. 9.55. If we take higher and lower price range, PE Multiple comes to around 71.73 - 73.30. Prima facie, the issue is over priced. 

 

Comparison of SBI Life Insurance with ICICI Prudential

 

ICICI Prudential Life Insurance Company is the only listed private life insurance company and the only peer of SBI Life Insurance Company at this moment.  ICICI Prudential recorded EPS Rs. 11.72 for Fiscal 2017. If I take CMP (Current Market Price) Of ICICI Prudential i.e. 423.35 (Closing price as on September 15,017 on BSE)  its PE comes to 38.05. It means ICICI Prudential shares is much cheaper than SBI Life Insurance. It would better be buying shares of ICICI Prudential than subscribing SBI Life Insurance IPO. Moreover, the two important figures of ICICI Prudential are impressive, RoNW (Return on Net Worth )and EPS. As on March 31,2017, ICICI Prudential Life Insurance and SBI Life Insurance RoNW was 28.67% and 18.56% respectively. EPS on the same date was Rs.11.72 (ICICI Prudential) and Rs. 9.55 (SBI Insurance). ICICI Prudential has more capacities to earn return on its worth than SBI Life.

 

So, before going ahead I would say that there is no need to be much happy about being prospective shareholder of SBI Life Insurance. It is better to invest in a company which has higher RoNW and EPS. However, I am NEUTRAL on this IPO having seen huge listing gain on Dixon Technologies on September 18,2017. SBI Life Insurance is SBI promoted company, so you can not doubt on its potential.  As I had said in ICICI Lombard IPO Review, when it is 100% offer for sale, market analysts and investors are apprehensive whether to subscribe or not. But again, it depends on the company under consideration and the price it has set.

SBI Life Insurance 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. 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 (Source: Fortune Global 500). The company believes relationship with State Bank and BNPPC has enabled it to enhance its brand, access specialist industry expertise, grow its  business and consolidate its market position.

SBI Life Insurance is 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, its New Business Premium generated 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 Fiscal 2017) in India (Source: CRISIL Report).

It has developed a multi-channel distribution network comprising an expansive bancassurance channel, including State Bank, the largest bancassurance partner in India, a large and productive individual agent network comprising 95,177 agents as of July 31, 2017, as well as other distribution channels including direct sales and sales through corporate agents, brokers, insurance marketing firms and other intermediaries. In Fiscal 2017, it collected the highest amount of New Business Premium generated by private life insurers in India both through the bancassurance channel as well as through an individual agent network (Source: CRISIL Report). We have also developed long standing institutional relationships with large corporates with respect to our group life insurance products

Comparison with other private life insurance players

If we see 3 year CAGR (Compounded Annual Growth Rate) Growth for private life insurance players and industry on the basis of New Business Premium, ICICI Prudential is ahead of SBI Life.

Market Share of private life insurers on the basis of New Business Premium summary is hereunder;

 

SBI Life has wide distribution channel. At this level of network, SBI Life's market share should be dominant. However, it is 20.04% only.  Here also, SBI is not too much ahead of HDFC Life and ICICI Prudential, hardly 3% to 5%.

There are two types of investors, one who would apply for listing gain and others who keep for long term wealth appreciation.  HDFC Life IPO is also under pipeline, so second type of investors would better wait for HDFC Life or buy ICICI Prudential rather than choosing SBI Life Insurance IPO. 

 

Conclusion:

 

I write one sentence, "Anything and everything is possible in the Indian Securities Market"

 

I am NEUTRAL on SBI IPO because barring pricing there are many competitive strength of this company;

 

1. One of the largest private life insurer with a consistent track record of rapid growth

2. Significant brand equity and pre-eminent promoters

3. Expansive multi channel distribution with pan-India bancassurance channel and high agent productivity

4. Sustainable business model driven by robust financial position, superior investment performance, diversified product portfolio and effective risk management

5. Strong focus on customer service standards

6. Professional and highly experienced Board of Directors and Senior Management team

Thank you for reading..Jai Hind

CA Prashant Seta

(Disclaimer : I write reviews based on my knowledge and understanding. Investors should do their own research before applying)