SBI Life IPO Review

SBI Life Insurance  is approaching  the market its Rs 8,400 crore initial public offering and has set the price band for the issue at Rs 685-700 per share. SBI Life Insurance Company Limited (“SBI Life”) is India’s Leading Private Life Insurer, in terms of New Business Premium generated in each fiscal year, since Fiscal 2010. SBI Life is a joint venture between State Bank of India (SBI) and BNP Cardif who will dilute 8 percent and 4 percent, respectively.SBI Life IPO comprises   an offer for sale by State Bank of India and BNP Paribas Cardif where each will be selling up to 80 million equity shares and up to 40 million equity shares, respectively. 

SBI Life IPO Issue Details
Issue Period  Sept 20, 2017 – Sept 22, 2017
Price Band Rs.685 – 700
Employee Discount Rs.68/- per share
Bid Lot 21 Equity Shares and multiple thereof
Issue Size (No. of Shares) Offer for Sale of 120,000,000 Equity shares
Issue Size ( Rs.)  Rs.8,386 Cr (at Upper end)
Employee Reservation  2,000,000 Equity shares (Rs.126Cr)
SBI Shareholders Reservation: 12,000,000 Equity shares ( Rs. 840 Cr)
Issue Structure :  
QIB 50% of the Net offer -3,000,000 Shares   – Rs.3,710 Cr
NIB 15% of the Net offer -15,900,000 Shares – Rs.1,113 Cr
Retail 35% of the Net offer -37,100,000 Shares – Rs.2,597Cr
BRLMs Axis Capital, JM Financial, BNP Paribas, Citigroup Global, Deutsche Equities, ICICI Securities, Kotak Mahindra Capital, SBI Capital Markets
Registrar Karvy  Computershare Pvt. Ltd
About SBI Life
  • Incorporated in the year 2000, SBI Life Insurance Ltd  is a joint venture between the State Bank of India (India’s largest commercial bank) and BNPPC (an insurance subsidiary of BNP Paribas Cardif). SBI owns 70.1% of the total capital in SBI Life while BNP Paribas Cardif owns 26% of the equity and private equity giant KKR and Singapore state investment firm Temasek hold the rest
  • In Fiscal 2017, SBI Life enjoyed a market share of Individual Rated Premium of 20.69% among Private Life Insurers in India and 11.16% of the entire Life Insurance industry in India 
  • SBI Life Insurance Company Limited (“SBI Life”) is India’s Leading Private Life Insurer, in terms of New Business Premium generated in each fiscal year,
  • As of 30 June , SBI Life had a portfolio of 37 individual and group products, including a range of protection and savings products to address the insurance needs of diverse customer segments.2017
SBI Life IPO: Indicative Timetable
  • Finalisation of Basis of Allotment ;On or about Sept 27, 2017
  • Unblocking of funds from ASBA ; On or about Sept 28, 2017
  • Credit of Equity Shares to demat accounts ; On or about Sept 29, 2017
  • Commencement of trading on NSE & BSE; On or about Oct 3, 2017
Insurance Sector in india

For a brief perspective of the Insurance Sector in the country, please refer related post SBI Life IPO: Comparison with ICICI Pru Life

SBI Life IPO: Financials in Brief:
Rs. In Crores
Particulars Q1FY18 2017(12) 2016(12) 2015(12) 2014(12)
Revenue-Premiums Earned 3,788.00 21,015.10 15,825.30 12,867.10 10,783.40
Revenue-Investment Income 2,606.90 9,294.90 3,340.90 10,242.90 6,353.90
Profit Before Tax 322.2 974.5 855.1 829.3 727.7
Profit after Tax 313.4 954.6 844.1 814.8 727.7
Face Value (in Rs.) 10
Share Capital 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00
Reserves (net) 4,778.20 4,464.70 3,690.60 2,990.90 2,320.10
Net Worth 5,878.70 5,552.00 4,733.10 4,056.30 3,356.30
NAV (Rs. per share) 58.7 55.5 47.3 40.5 33.5
Ratios & Overall Operational Metrics
EPS FY17 9.5
EPS q1FY18 3.1
IPO or Market Price 700
PE  (Fy17) 73.68
PE(Q1fy18 annualized) 56.45
NAV 31/03/17 55.5
P/BV (Fy17) 12.61
RONW  18.50%
ROE 18.60%
Dividend Payout ratio 18.90%
Embedded value 16538
Market Cap 70000
Market Cap/embedded value 4.23
AUM 97736
Operating Expense Ratio 7.8
Solvency Ratio 2.17
Operating Expense Ratio 9.21
Persistency Ratios  13th month  81.07%
Persistency Ratios  25th month  73.90%
Persistency Ratios  37th month  67.00%
Persistency Ratios  49th month  62.50%
Persistency Ratios  61th month  67.18%
Distribution new business- Bancassurance 54.58%
Distribution new business- Indv Agents 43.69%
Claims Settlement Ratio 97.98
Please see the Related Post for a Detailed Comparison with ICICI Pru  Life  SBI Life IPO: Comparison with ICICI Pru Life

A comparison of some parameters to show year wise variation vis a vis ICICI Pru Life Insurance is given here:

  SBI Life Insurance ICICI Prudential Life 
Parameter FY16 FY17 FY16 FY17
persistency 13th Month 80.00% 80.60%   85.70%
persistency 37th month  68.40% 66.20% 56.40% 66.80%
persistency 61st month  50.60%     56.20%
NBP-APE (Rs. crore) 5,045 6,727 5,108 6,496
NBP-APE growth (%) 39.90%   9.90% 27.20%
Total expense ratio (%) 13.90% 11.60% 14.30% 14.80%
VNB margin (%) 14.20% 15.40% 8.00% 10.10%
RoE (%) 19.20%   31.20%  
AUM (Rs. Bn) 798 977 1,039 1,229
AUM growth (%) 12.00%   4.00%  
Industry Related Terms
  • Annual Premium Equivalent (APE) is a measure of new business written by a life insurance company. It is computed as the sum of annualised first year premiums on regular premium policies, and ten percent of single premiums, written by the Company during any period from new retail and group customers.
  • Value of New Business (VNB) and VNB margin: VNB is used to measure profitability of the new business written in a period. It is present value of future profits to shareholders as measured at the end of the year in which the business is written. Future profits are computed on the basis of long term assumptions which are reviewed annually. Also referred to as NBP (new business profit). VNB margin is computed as VNB for the period/APE for the period. It is similar to profit margin for any other business.
  • Embedded Value (EV): EV is the current networth of the company plus the present value of all future profits to shareholders< from the existing book of the Company (including new business written in the year). As in the case of VNB, future profits are computed based on assumptions which are reviewed annually. A positive EV variance is indicative of superior performance by the Company as compared to what was assumed in arriving at the EV at the beginning of the year. A positive EV variance and VNB increase the EV year on year. AUM refers to the carrying value of investments managed by our Company and includes Investment loans and net current assets pertaining to Unit Linked investments.
  • Bancassurance: An arrangement entered into by a financial institution (such as banks, non-banking financial companies, micro-finance institutions and small finance banks) and an insurance company (either through corporate agency or master policyholder arrangement),, through which the bank sells or markets the insurance products of the Company to the bank’s client base.
  • Persistency Ratio: The ratio of policies remaining in force to all policies issued in the period 13 month/25month etc, prior to the date of measurement and is referred to as 13th month/25th month persistency etc It is the percentage of policies that have not discontinued paying premiums or surrendered. It can be measured in terms of number of policies or in terms of premium.
  • NBP: New business premium is the premium acquired from new policies for a particular year.
SBI Life IPO: Rationale for Investment:
  • SBI Life is one of the largest private life insurer with a consistent track record of robust growth
  • The Brand SBI has Significant brand equity and company has pre-eminent Promoters
  • SBI Life has expansive multi-channel distribution with pan-India bancassurance channel and high agent productivity. The share of Bancassurance as a channel has increased from 47.8% in year 2015 to 53% in 2017. With the merger of SBI affiliates bank, this channel has been further strengthened and is lukely to  increase the new business premium going forward. 
  • SBI LIfe derives benefit from its relationship with State Bank and BNPPC, in particular drawing from their established brand equity and goodwill among customers. As of March 31, 2017, State Bank was India’s largest commercial bank in terms of deposits, advances and number of branches (Source: RBI data). Following its recent merger with certain of its subsidiary banks and a non-affiliate bank, with effect from April 1, 2017, State Bank had 24,017 branches, 195 international offices in 36 countries globally and more than 420 million customers. BNPPC, the insurance subsidiary of BNP Paribas, with operations across 36 jurisdictions, is among the global leaders in credit life insurance business. BNP Paribas was a top 10 global financial institution in terms of revenues in 2017 (Source: Fortune Global 500).
  • Between Fiscal 2015 and Fiscal 2017, SBI Life  New Business Premium generated increased at a CAGR of 35.45%, which is the highest among the top five private life insurers.
  • SBI Life seems to have a stable business model driven by robust financial position, good brand superior investment   performance, diversified product portfolio and effective risk management and focus on customer service standards
  • As of March 31, 2015, 2016 and 2017 and as of the three months ended June 30, 2017,SBI Lifer Solvency Ratio was 2.17, 2.12, 2.04 and 2.11, respectively, compared to the IRDAI mandated requirement of 1.5
  • The growth from FY15 onwards has been much higher and a part of this may be as SBI has benefited from the government’s focus on insurance for the masses.
  • SBI Life has the lowest total expense ratio (11.56% – FY17) among the largest players in the industry. 
  • SBI Life Operating Expenses
SBI Life IPO: Concerns
  • SBI Life derives considerable income from its investment portfolio which  is subject to liquidity risk and volatility in the market value.
    As of June 30, 2017, our AUM was ₹ 1,012,260.34 million, and equities, government securities and corporate bonds represented 23.02%, 46.44% and 21.92%, respectively, of its AUM. This is prone to market risks.
  • SBI Life operates in a regulated industry and any change in regulations or any regulatory action against us, agents and other intermediaries could have an adverse effect on our business, prospects, financial condition and results of operations.
  • Changes in interest rates may have a material adverse effect on SBI Life business and results of operations.
  • The company do not own the “SBI” trademark or the “SBI Life” logo.
SBI Life IPO: Assessment
  • SBI Life is placed second to ICICI Prudential in terms of total premium earned with a market share of 17.82% in FY2017 (ICICI Prudential had 18.96% market share in FY2017).
  • Fiscal year 2017 (FY17) was phenomenal for SBI Life Insurance Co. Ltd on most parameters as it reported a sharp growth in new business premium, reduction in expense ratio and an improvement in persistency ratios
  • SBI has a large branch network. The share of Bancassurance as a channel stood at 53% in FY17. With the merger of SBI affiliates one can expect that his channel  will increase the new business premium going forward. 
  • SBI Life has beaten its peers at  certain growth metrics, for quite some now and the trends has been carried to Q1FY18 as well.  SBI Life business premium grew 35% between FY15 and FY17, and its AUM (Assets under management)o rose 17.1%. Both figures are the highest among peers.
  • SBI life stands to benefit due to genral faith of people at large in SBI  as a dependable ovt organisation and considerable presence of SBI (also though Pujjab Sind Bank and Regional Rural Banks which are its distributors) 
  • SBI Life has priced its shares at upper band of Rs 700. THis translates to a valuation of Rs. 70000/- which is significantly higher than its Rs46,000 crore valuation in December 2016, when it sold a 3.9% stake to investors KKR and Temasek .
  • It cannot be denied that even as the SBI Life IPO is fully priced, it also has strong potential to deliver high double digit growth for many years.
  • Though the SBI Life IPO issue could end up with no listing gains or even marginal losses or some marginal listing gains, I intend to put at least some applications in the IPO. 

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.

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