SBI Life Insurance IPO hits Dalal Street; should you invest?

SBI Life Insurance's public offer (IPO) is now open. 

SBI Life Insurance, a subsidiary of State Bank of India (SBI) will hit the market tomorrow to raise up to Rs 8,400 crore. 

It is a joint venture business with SBI and BNPPC as major stakeholders and KKR and Temasek as other shareholders. 

For the IPO, the company has set price band in the range of Rs 685-700 per piece. The company is offering 12 crore shares of face value Rs 10 each through offer for sale diluting 12% stake in company. 

Promoter SBI will reduce its holding by 8% to 62.1% and BNPPC will reduce 4% stake to 22%. Eligible employees of SBI will get a discount of Rs 68 per share on the offer price. 

Book Running Lead Manager for this IPO are JM Financial Institutional Securities Ltd, Axis Capital Ltd, BNP Paribas, Citigroup Global Markets India Private Limited, Deutsche Equities India Private Limited, ICICI Securities Limited, Kotak Mahindra Capital Company Limited, SBI Capital Markets Limited. 

Looking at the business of the company, SBI Life lead with highest new business premium in life insurance segment with 20.04% share growing with CAGR of 35.45% during FY15-17. They are among the top four private life insurers having 24.2% CAGR renewal premium growth in FY14-17 and being the most cost efficient with just 11.6% total cost ratio.

According to HDFC Securities report, 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. 

What analysts are saying?

SBI Life, sixteen year old company is the most trusted name in the Indian life insurance industry. With this "trust" factor, the analysts have given "subscribe" rating to this one.

Vrinda Aditya, Analysts at Asit C. Mehta in her IPO note said, "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."

Having similar views and "Subscribe" rating, Centrum Broking in its note said, "Going ahead, the company is expected to benefit further from the vast bancassurance and private agent network along with its extensive reach and market share. We believe the company will be able to attract adequate investor interest on the basis of its leadership position and expected healthy growth compared to peers."

However, pointing at the risks, the brokerage firm stated three factors: 1) Any termination/ change in bancassurance arrangements or decline in performance of bancassurance partners may adversely effect the business and financial condition; 2) High dependence on the unit-linked products – 79% of NBP from individual business in FY17; 3) Liquidity risk to the company’s investment portfolio.