HDFC Life IPO Off To A Good Start: 10 Things To Know About The Offer

HDFC Standard Life Insurance (HDFC Life), the third largest private sector life insurance company, was subscribed over 66 per cent as of 1 pm on second day of the initial public offer (IPO). The issue will close on November 9. Total number of shares that were bid on Tuesday were 10,03,43,050 out of the total of 21,97,59,218 offered, according to the data on the NSE. The qualified institutional buyers (QIB) had bid 1.4 times of the shares on offer. Non institutional investors bid 22% of their available quota on the first day of IPO. Similarly, retail individual investors made bids for 14%, while employees bid for 44% of the total number of shares offered in their quota. 

After the IPO, HDFC Life's market cap will range between Rs 55,247 crore (at the lower end of the share price band) and Rs 58,260 crore (upper share price). HDFC Standard Life Insurance on Monday raised Rs 2,322 crore from anchor investors. Singapore's sovereign wealth fund Temasek, Norwegian fund Norges, Kuwait Investment, T Rowe Price, Fidelity, Blackrockand JP Morgan are among the anchor investors, according to a regulatory filing. The shares have been allocated at the upper price band of Rs 290 apiece.

Ten Things to know about HDFC Life IPO:

1. The scrips are offered in the share price band of Rs 275 to Rs 290. 

2. Total size of the IPO is nearly 15 per cent of the paid-up capital that amounts to Rs 8,245 crore to Rs 8,695 crore.

3. HDFC Life's profit after tax for past three fiscals was Rs 786 crore, Rs 817 crore and Rs 887 crore and it rose by 8 per cent, 4 per cent and 9 per cent, respectively.

4. HDFC Life's earnings per share for the past three fiscals stood at Rs 3.9, Rs 4.1 and Rs 4.4.

5. At the upper band of Rs 290, the issue is valued at 4.2 times of second quarter of 2018 fiscal embedded value (EV) of Rs 14,011 crore, a bit higher than close listed players SBI Life and ICICI Pru which are trading at 3.6 times and 3.3 times of their second quarter earnings, respectively. However, Angel Broking believes that the slight premium is justifiable, considering, consistent growth across premium categories, improving dividend payout over the last four years, strong parentage, trusted brand name, highest VNB margin (22 per cent for FY2017) and well balanced business mix.

6. The price equity ratios (P/E) for past three fiscals (2015, 2016, 2017) were 74, 71 and 66, respectively. Price to book value (P/BV) ratios were 23, 19 and 15.

7. HDFC Life was established in the year 2000 as a joint venture between HDFC and Standard Life Aberdeen Plc, initially through wholly owned subsidiary.

8. Currently, HDFC owns 61.21 per cent in the joint venture, which will come down to 51.69 per cent, while Standard Life's 34.75 per cent shareholding will come down to 29.35 per cent post the IPO.

9. Over the past two financial years (2015 to 2017), overall total premium grew at compound annual growth rate or CAGR of 14.5 per cent to Rs 19,445 crore. It has reported healthy return on equity of 23 per cent and Operating Return on Embedded Value of 21.7 per cent for the fiscal year 2017.

10. The VNB (Value of New Business) margin has increased by 350 basis points to 22 per cent over the past two fiscals, which is the highest in the industry - ICICI Prudential has 10 per cent, SBI Life has 15.4 per cent. Angel Broking said that healthy VNB margin has kept HDFC Life self-sustained, and hence, it would not require diluting capital very often.  (With Agency Inputs)