SBI Life Insurance Company Ltd is the India’s largest private life insurer in terms of new business premium (NBP) generated in each fiscal year since FY10. It has also increased its market share of NBP generated among private life insurers in India, from 15.9% in FY15 to 20% in FY17. Over FY15-17, the company’s NBP increased by 35.5% CAGR, which is the highest among the top five private life insurers (in terms of total premium in FY17) in India.
The company's maiden issue opens for subscription today. At the IPO price band of Rs 685-700, the stock is available at P/IEV multiple of 4.2x FY17 (post issue) at the upper end of the price band. Post issue market capitalisation is at around Rs 70,000 crore.
Also Read: SBI Life's premium pricing justified
So, should you subscribe to the issue? Here's what leading brokerages and research houses suggest.
ANGEL BROKING
We believe the Indian Life Insurance industry is in a phase of high growth and lower 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. At the upper price band of INR700, the issue is offered at 4.2x its Embedded Value of Rs 16,538 crore, little higher than 3.8x for ICICI Prudential. 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 long-term perspective.
IIFL
SBI Life is well positioned to capitalise on any opportunity given significant scope for penetration within bancassurance network (mammoth base of SBI, SIB and PSB combined), planned investment in individual agency channel and emphasis on digital platform. Not to forget, the company has a strong brand pull also.
SBI Life has the lowest total cost ratio among the private life insurers which is backed by an impressive control over opex. This coupled with improving persistency and mortality experience is driving an expansion in VNB margin. Operating return on EV (RoEV) stood at handsome 23% in FY17. Solvency ratio of 200% implies a healthy financial position. In our view, the IPO pricing at ~4.2x FY17 EV (10% premium to I-Pru Life) factors relative franchise strengths to an extent. However, it is not fully reflective of the structural value that high growth and improving margins could create in the longer run. We recommend Subscribe.
CHOICE RESEARCH
At the higher price band of Rs 661 per share, SBI Life's share is valued at a FY17 Price/Indian Embedded Value (P/IEV) multiple of 4.2x, which is at a premium to its only listed peer ICICI Prudential Life Insurance Company Ltd. (trading at a P/IEV of 3.8x). We assign a “Subscribe with Caution” rating for the issue. We feel that that the investors can enter in this script at a lower price post listing and can hold it for a long period for better returns.
ANTIQUE STOCK BROKING
Strong parentage and wide branch network of SBI provides the company a distinct advantage over many other insurers and enables it to maintain strong growth momentum while keeping a tight reign on cost ratios. SBI Life has well diversified individual new business mix (17%, 4%, and 79%) between participating, non-participating and ULIP products. We expect SBI Life insurance to deliver 25% CAGR in new business APE over FY17-19E and deliver healthy return ratios.
At upper end of IPO price band the issue is priced at 3.1x FY19E EV which we believe leaves little upside in the near term. However favourable demographics, healthy return ratios and market leadership position of SBI Life makes it an interesting play for long term investors. We thus recommend subscribe to the issue from a medium term perspective.