HDFC Standard Life IPO begins; Is it worth subscribing?

HDFC Standard Life Insurance Company on Tuesday launched it's initial public offering (IPO) at a price band ranging between Rs 275 - Rs 290 per share. 

The issue will be available for subscription till November 09, 2017. 

HDFC Standard is offering nearly 30 crore equity shares and plans to raise nearly Rs 8,695 crore from this issue. 

50% of total equity shares offered belong to Qualified Institutional Buyers (QIB), while 35% has been kept aside for retail individual investors (RII ) and remaining 15% for non-institutional investors (NII). 

Companies like Morgan Stanley, HDFC Bank, Credit Suisse Securities, CLSA India, Nomura Financial Advisory & Securities, Edelweiss Financial Services, Haitong Securities India, IDFC Bank, IIFL Holdings and UBS Securities India are acting as book running lead managers (BLRM) for the issue. 

A day before the IPO, the company raised about Rs 2,322 crore from its anchor investors by allocating nearly 8.07 crore equity shares at the upper price band of Rs 290 per share. 

The decision to enter primary markets comes after when the company called off its deal with Max Financial Services in July 2017 citing delays in the process and many regulatory hurdles as the reason. 

At the IPO price band of Rs 275-290, the stock is available at P/IEV multiple of 4.2x H1FY18 EV of Rs 14010 crore (post issue) at the upper end of the price band. 

On the back of parenting brand 'HDFC', strong corporate governance and better than industry VNB margins along with high dividend payouts, many analysts have recommended to subscribe the issue. 

Vidhi Shah, R Sreesankar and Pritesh Bumb analysts at Prabhudas Lilladher mentioned that HDFC SL has a high share of protection business (the most profitable business segment) at 26.4% of total NB in H1FY18 and focus to increase further. We believe Operating RoEV to improve to 23‐24% (22% currently) and VNB margins to 24% by FY20. At the upper end of the price band, we believe is fairly priced and hence recommend to Subscribe for long term gains.

Similarly recommending for subscription, analysts at GEPL Capital said, "We believe that HDFC Life gives a higher return on equity than its peers through its value added business model."

Yogesh Hotwani and Pooja Doshi analysts at Motilal Oswal are very positive on HDFC Life for long term as life Insurance sector in India provide huge opportunities for growth. 

However, the duo at Motilal feels HDFC Standard's valuation looks higher compared to other listed financial companies (like NBFCs, Insurance and Private banks). 

Yet they believe premium valuations are justified due to 1) Huge potentials for growth as Insurance in India is highly underpenetrated, 2) Strong financial performance with consistent and profitable growth, 3) Focus on customer centricity enabling growth across business cycles, 3) Consistently growing multi-channel distribution footprint and 4) Consistent and Strong ROEs. 

HDFC Life has delivered Premium Income / PAT growth of 14%/19% in FY13-17. Also the company has witnessed strong ROEs (return on equity) in excess of 21% consistently for last 5 years. 

Payal Pandya, Research Analyst analysts at Centrum Wealth said, "We believe the company will be able to attract adequate investor interest on the basis of it robust fundamentals compared to peers and strong parentage. Given the mature valuations, investors can subscribe to the issue from a long term perspective."

Pandya did pointed out that  since the issue is being offered at expensive valuation, it may not attract major listing gains.

Post issue, the company is expected to have market capitalisation ranging between Rs 58,233 crore and Rs 61,409 crore.