SBI Life Insurance IPO – Should you invest in this IPO?

SBI Life Insurance IPO - Should you invest in this IPO-minSBI Life Insurance IPO – Should you invest in this IPO?


SBI Life Insurance IPO would open for subscription on 20th September, 2017. SBI Life Insurance Ltd is India’s largest private life insurer in India. Its revenues grew at 19% CAGR in last 5 years. It posted profits of 3.2% for FY2017. SBI Life IPO is the second IPO in the life insurance segment in India after ICICI Life Insurance IPO which would get listed. What are the positive factors in SBI Life Insurance Ltd IPO? What are the hidden factors in SBI Life Insurance IPO? Is SBI Life IPO Price is reasonably priced? How does SBI Life IPO compared with ICICI Life Insurance Share price? In this article, I would provide some interesting insights and do SBI Life Insurance Limited IPO Review.

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About SBI Life Insurance Ltd


They are India’s largest private life insurer, in terms of New Business Premium generated in each fiscal year, since Fiscal 2010. they have 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. Between Fiscal 2015 and Fiscal 2017, its New Business Premium generated increased at a CAGR of 35.45%, which is the highest among the top five private life insurers (in terms of total premium in Fiscal 2017) in India. They were established as a joint venture between the State Bank and BNPPC in 2001.

SBI Life Insurance IPO Issue details


  • IPO open date: 20-September-2017
  • IPO close date: 22-September-2017
  • Face Value: Rs 10 per share
  • Issue price band: Rs 685 to Rs 700 per share
  • Issue size: Rs 8,400 Crores on higher price band
  • SBI Life Insurance IPO Lot size:  21 shares and 21 shares there-off
  • Minimum investment: Rs 14,700
  • Leading Managers: JM Financials, Axis Capital, BNP Paribas, Citi Global Markets, Deustsche Equities, ICICI Securities and Kotak Securities
  • Listing: BSE / NSE
  • Download SBI Life Insurance IPO RHP Prospectus at this link.

Objects of the SBI Life Insurance Ltd IPO issue


The objects of the Offer are to achieve the benefits of listing Equity Shares on the Stock Exchanges and to carry out the sale of up to 120,000,000 Equity Shares by the Promoter Selling Shareholders. The listing of Equity Shares will enhance the “SBI Life” brand name and provide liquidity to the existing Shareholders. The listing will also provide a public market for Equity Shares in India. Company will not receive any proceeds from the Offer.

Company Financials (reinstated)


1) The company generated revenue of Rs 14,975 Crores for the year ended Mar-13 and Rs 30,277 Crores for the year ended Mar-17.  

2) The company posted a profit of Rs 630 Crores for the year ended Mar-13 and profit of Rs 954 Crores for the year ended Mar-17.

3) Its FY17 EPS is Rs 9.5 and 3 years average EPS is Rs 8.9.

SBI Life Insurance IPO - Financial Summary-min

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What are the key strengths of SBI Life Insurance Limited?


Here are the key strengths of the company.

1) One of the largest private life insurer with a consistent track record of rapid growth.

2) Significant brand equity and pre-eminent Promoters.

3) Expansive multi-channel distribution with pan-India bancassurance channel and high agent productivity.

4) Sustainable business model driven by robust financial position, superior investment performance, diversified product portfolio and effective risk management.

5) Strong focus on customer service standards.

6) Professional and Highly Experienced Board of Directors and Senior Management Team.

What are the Strategies of SBI Life Insurance  Ltd?


Here are the key strategies of SBI Life Insurance which it want to focus.

1) Capitalize on insurance industry growth opportunities.

2) Ensure profitable growth through balanced product portfolio and expansive distribution network.

3) Enhance brand equity and continue to focus on customer satisfaction.

4) Leverage technology to improve operating efficiencies and support growth.

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Reasons to invest in SBI Life Insurance IPO


1) It posted strong revenue growth of 19% CAGR in the last 5 years.

2) It is posting consistent marings in between 3% to 4% in the last 5 years. It posted margins of 3.2% for FY17.

3) It would be the second Life Insurance company to get listed in India after ICICI Life Insurance.

Risk Factors / Reasons not to invest in a SBI Life IPO


1) An inability to maintain its market share, implement growth strategies or effectively address the requirements of specific customer segments by maintaining a strategic portfolio of insurance products may materially and adversely affect its business operations and prospects, and consequently its financial condition and results of operations.

2) Any termination of, or adverse change in, its bancassurance arrangements, and in particular its bancassurance agreement with the State Bank, or a decline in performance standards of its bancassurance partners, may have a material adverse effect on its business, results of operations and financial condition.

3) Significant proportion of its New Business Premiums are generated by a certain category of products. Any regulatory changes or market development that adversely affects the sale of such products could have a material adverse effect on its business, financial condition and results of operations.

4) Any adverse change in its relationship with its individual agents and other distribution intermediaries, a decline in performance of its agent or other distribution network or an inability to enter into additional distribution arrangements may have a material adverse effect on its business, results of operations and financial condition.

5) Its investment portfolio is subject to liquidity risk and volatility in the market value of such financial instruments and may be concentrated in certain asset classes.

6) Changes in interest rates may have a material adverse effect on its business and results of operations.

7) Its Company, Directors, Promoters and certain Group Companies are involved in certain legal and other proceedings.

8) They operate 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 its business, prospects, financial condition and results of operations.

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9) Certain of its Group Companies have incurred losses in the past, which may have an adverse effect on its reputation and business.

10) Other risk factors (Internal and external) can be viewed in the draft prospectus.

Recommendation / Investment strategy – SBI Life Insurance IPO


On the upper price band of Rs 700 and on restated FY17 EPS of Rs 9.5, P/E ratio works out to 73x. Even based on last 3 years restated EPS of Rs 8.95, P/E ratio works out to 78x. Means, company is asking higher price band of Rs 700 in the P/E ratio of 73x to 78x. ICICI Pru Life Share price is trading at Rs 426 which is at P/E Ratio of 38. Means SBI Life Issue Price at P/E ratio of 73x to 78X is over priced.

Company revenues grew at 19% CAGR in the last 5 years. It is earning consistent margins between 3% to 4%. However its issue price is over priced (almost double price being asked by SBI Life IPO compared to ICICI Life Insurance IPO). IPO may not get multi level oversubscription as the issue size of Rs 8,400 Crores is very high. Investors may also get easy allotment. Considering all these negative factors, my personal view is that investors should stay away from such high priced IPOs. One can invest in SBI Life shares after listing if it is available at discounted price.

Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

Readers, What is your view on this IPO? Do you feel my thoughts are not correct?

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Suresh

SBI Life Insurance IPO – Should you Invest in this IPO

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