SBI Life Insurance IPO opens for subscription today to become the second listed life insurance company in India, following the footsteps of ICICI Prudential which launched its IPO last year. We have presented our views regarding the IPO in this article but investors would be rightly interested in finding out what equity research analysts and brokerage houses have to say about the public offer. Like the recently completed ICICI Lombard General Insurance IPO, pricing is an issue here in our view and some brokerage houses have also pointed out the same. Despite analysts pointing out high valuations, SBI Life Insurance IPO recommendations are mostly positive. Here is a snapshot.
In its report aptly titled “Valuation not supportive”, Choice Broking has advised investors to Subscribe with caution. “In Dec. 2016, SLIC has sold a minority stake of 3.9% to two investors for a consideration of Rs. 18bn. At an FY16 IEV of Rs. 130bn and an P/IEV of 3.5x, the firm was valued to around Rs. 455bn. Currently, at the higher price band, the company is demanding a valuation of Rs. 700bn, i.e. an P/IEV of 4.2x on an FY17 IEV of Rs. 161.8bn. The demanded valuation is at a steep premium of around 54% to the Dec. 2016 transaction and the demanded P/IEV of 4.2x is too higher as compared to the trading range of 3.5-4.4x of ICICI Prudential Life Insurance Company Ltd. We feel that steep valuation has left limited room for price appreciation for the retail investors,” said its research report.
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On the other hand, Angel Broking feels the premium is justified as SBI Life Insurance is a strong brand name and has wide distribution network. “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 `700 the issue is offered at 4.2x its Embedded Value of `16,538cr, 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,” said analyst Jaikishan J Parmar in the report.
Adding further to positive SBI Life Insurance IPO recommendations is Asit C Mehta which finds the pricing fair. “SBI Life is the largest life insurance provider in India with 21% life insurance market and 11% as a whole of the insurance industry. At the upper price band, asking price is at a P/EV (price/embedded value) of 4.1X at FY17 EV of Rs. 1,65,379mn, which is fairly priced. We recommend to SUBSCRIBE the issue from a long-term prospective,” said the brokerage house.
SMC Global Securities sounded a word of caution stating high valuations and adding that the offer may be suited only for long term investors. “SBI Life has seen robust growth in premium income during the past financial year and has declared dividends every year since Fiscal 2012. 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. 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. Considering all these aspects, it is expected that company would see good growth going forward. However the issue looks expensive. A long term investor may opt the issue,” opined SMC’s research note.
Hem Securities has also advised investors to subscribe to the upcoming IPO. “Company is bringing the issue at p/e multiple of 55-56 on post issue Q1FY18 annualized eps of Rs 12.54. At upper band, co is trading at P/EV multiple of 4.23x which is slightly higher. Although company has enjoyed superior growth but looking after valuation, we recommend “Subscribe” on issue for long term,” pointed out its IPO note.
Reliance Securities is among the brokerage houses having positive SBI Life Insurance IPO recommendations. The firm considers the IPO a healthy investment opportunity owing to multiple tailwinds. “Being the market leader in new business premium, we expect SBI Life to be a key beneficiary of strong growth in Indian life insurance industry over the next few years owing to low life insurance penetration, rising income level and higher preference for financial assets (such as insurance). At higher price band of Rs700, the Issue is priced at 4.2x Embedded Value of Rs165.4bn of FY17, which in our view is reasonable as its operating RoEV of 23% is the best among large private sector life insurers. We recommend SUBSCRIBE to the Issue, as in our view it provides healthy investment opportunity for the long-term investors,”
While SBI Life Insurance IPO recommendations are positive on the back of a strong brand name, it is always better to be extra cautious during bull markets. Nevertheless, feel free to check out the IPO discussion page and the grey market page to get latest updates about the public offer.