SBI Life Insurance Company Ltd. will launch its initial public offer on Wednesday to raise up to Rs 8,400 crore. The subsidiary of the country’s largest lender State Bank of India is set to become India’s second pure-play life insurer to go public.
In the three-day offer, the company will issue up to 12 crore equity shares at a price band of Rs 685-700 apiece. At the upper end, it will command a valuation of Rs 70,000 crore, according to BloombergQuint’s calculations.
JM Financial Institutional Securities Ltd., Axis Capital Ltd., BNP Paribas, Citigroup Global Markets India Pvt., Deutsche Equities India Pvt., ICICI Securities Ltd., Kotak Mahindra Capital Company Ltd., and SBI Capital Markets Ltd. are the book running lead managers to the IPO.
About The IPO
The IPO is an offer for sale with SBI selling 8 percent stake and its joint venture partner BNP Paribas Cardif divesting 4 percent. SBI’s holding will come down from 70.10 percent to 62.1 percent, while BNP Paribas Cardif’s stake will fall from 26 per cent to 22 percent.
SBI Life has reserved a little over 10 percent of the shares for its employees and shareholders. Eligible employees will get a discount of nearly 10 percent from the upper band.
Also Read: Banks Reap A Windfall In Insurance Arm IPOs
Company’s Business
SBI Life offers 37 individual and group plans, ranging from term to unit-linked policies. Its income from investments rose 178 percent to Rs 9,295 crore in the year-ended March, largely on the back of Rs 5,527 crore gains on its unit-linked plans. ULIPs offer life cover through a mix of insurance and investment in stocks.
SBI Life benefits from the distribution network of its parent SBI and associated banks, besides individual agents, direct sales, corporate agents, brokers, insurance marketing firms and other intermediaries.
Bancassurance, or partnership with banks, contributed 64.7 percent of the insurer’s new business premium from individual products in the year to March. Besides SBI, the insurer has distribution pacts with Punjab & Sind Bank and South Indian Bank. It sells its products through 26,367 branches.
Individual new business premium from bancassurance increased at a compounded annual growth rate of 46.72 percent to Rs 4,185 crore in two years to March, higher than 27.2 percent for other private peers, according to its red herring prospectus.
Agency network contributed 34 percent of SBI Life’s new business premium from individual products through 95,355 individual agents during the period. It rose at a CAGR of 13.24 percent to Rs 2,204 crore in two years through March, compared to 9.39 percent for private peers.
Financial Highlights
- SBI Life’s net worth was Rs 5,552 crore as of March, according to its red herring prospectus.
- The embedded value, the consolidated value of shareholders’ interest in the business, rose 32 percent in the year to March.
- At the upper end and lower end of the price band, the stock will trade at 4.23 times and 4.14 times its embedded value, respectively.
- It earned Rs 1,037 crore in new business at a margin of 15.4 percent in the year to March.
- SBI Life’s net premium rose 33 percent to Rs 20,850 crore for the year ended March.
- It reported a profit of Rs 955 crore, up 13 percent year-on-year.
- SBI Life has declared dividends every year since 2012.
Peer Comparison
The company has a market share 20.69 percent among private life insurers and 11.16 percent of the entire industry. It’s has only one listed rival in ICICI Prudential Life Insurance Company. Another private rival, HDFC Standard Life, is also awaiting the market regulator’s nod for its initial share sale.
SBI Life Insurance had assets under management of Rs 97,737 crore as of March, up 37 percent from a year ago and the second highest among the top five insurers.
The company has one of the lowest operating expense ratio of 7.8 percent and total commission ratio of 3.7 percent, making it the most efficient among peers, it said in the prospectus. Total cost ratio, that factors in both, stood at 11.6 percent compared to 13.9 percent ICICI Prudential.
In the year to March, its mis-selling ratio of 0.20 percent was the lowest among the top five private life insurers, compared to ICICI Prudential’s 0.76 percent. In the year to March, SBI Life had the highest persistency ratio among the top five private life insurers.
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