HDFC Standard Life Insurance IPO – Should you invest or not?

HDFC Standard Life Insurance IPO Review-minHDFC Standard Life Insurance IPO – Should you invest?


Mumbai based, HDFC Standard Life Insurance IPO would open for subscription on 7th November, 2017. HDFC Standard Life Insurance Ltd is the 3rd largest Life insurance company in India. Its revenues grew at 29% CAGR in last 5 years. Its profits grew at 19% CAGR in the last 5 years. It is asking for issue price band Rs 275 to Rs 290. What are the positive factors in HDFC Standard Life Insurance Ltd IPO? What are the hidden factors in HDFC Standard Life Insurance IPO? In this article, I would provide some interesting insights and do HDFC Standard Life Insurance Limited IPO Review.

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About HDFC Standard Life Insurance Ltd


Company is one of the most profitable life insurers, based on Value of New Business (VNB) margin, among the top five private life insurers in India (measured on total new business premium) in Fiscal 2016 and Fiscal 2017, according to CRISIL. Besides consistently being among the top three private life insurers in terms of profitability based on VNB margin, they have also consistently been among the top three private life insurers in terms of market share based on total new business premium between Fiscal 2015 and Fiscal 2017, according to CRISIL.

HDFC Standard Life Insurance IPO Issue details


  • IPO open date: 7-November-2017
  • IPO close date: 9-November-2017
  • Face Value: Rs 10 per share
  • Issue price band: Rs 275 to Rs 290 per share
  • Issue size: Approx Rs 8,700 Crores on higher price band
  • HDFC Standard Life Insurance IPO Lot size:  50 shares and 50 shares there-off
  • Minimum investment: Rs 14,500
  • Leading Managers: Morgan Stanley, HDFC Bank, Credit Suisse Securites India, CLSA India, Nomura etc.,
  • Listing: BSE / NSE
  • Download HDFC Standard Life Insurance IPO RHP Prospectus at this link.

Objects of the HDFC Standard Life Insurance  Ltd IPO issue


1) To achieve the benefits of listing the Equity Shares on the Stock Exchanges.

2) To carry out the sale of Offered Shares by the Selling Shareholders.

Company Financials (reinstated-Standlone)


1) The company generated revenue of Rs 14,016 Crores for the year ended Mar-13 and Rs 30,554 Crores for the year ended Mar-17. 

2) The company posted a profit of Rs 447.7 Crores for the year ended Mar-13 and profit of Rs 892.1 Crores for the year ended Mar-17.

3) Its FY17 EPS is Rs 4.5 and 3 years average EPS is Rs 4.3. Its 6 months ended Sep-2017 EPS is Rs 2.8 (not annualized).

Financial Summary of HDFC Standard Life Insurance Ltd from FY2013 to FY2017-min

What are the key strengths of HDFC Standard Life Insurance Limited?


Here are the key strengths of the company.

1) Strong parentage and a trusted brand that enhances its appeal to consumers.

2) Strong financial performance defined by consistent and profitable growth.

3) Growing and profitable multi-channel distribution footprint that provides market access across various consumer segments in India.

4) Focus on customer centricity enabling growth across business cycles.

5) Leading digital platform that provides a superior experience for customers and distributors Independent and experienced leadership team.

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What are the Strategies of HDFC Standard Life Insurance Ltd?


Here are the key strategies of HDFC Standard Life Insurance which it want to focus in the coming years.

1) Reinforce its agile, multi-channel distribution platform to fortify and diversify its revenue mix across business cycles.

2) Drive innovation in product sales to enhance customer value proposition and to capture niche segments.

3) Invest in digital platforms to establish leadership in the growing digital space.

4) Continue to build economies of scale to ensure profitability and cost leadership.

Who are the Promoters of HDFC Standard Life Insurance Ltd?


The promoters of the Company are:

1) Housing Development Finance Corporation Limited (HDFC)

2) Standard Life (Mauritius Holdings) 2006 Limited

3) Standard Life Aberdeen plc

Reasons to invest in HDFC Standard Life Insurance IPO


1) It posted good revenue growth of 22% CAGR in the last 5 years.

2) It posted good profitability growth of 19% CAGR in last 5 years. It earned 3.8% margins for FY2017.

3) HDFC Life is among the top 5 largest life insurance companies in India which has good brand value.

Risk Factors / Reasons not to invest in a HDFC Standard Life Insurance Ltd IPO


1) They may be unable to implement its growth strategies and develop and distribute an appropriate product mix for specific customer segments through its multiple distribution channels.

2) Any termination of, or any adverse change to, its relationships with or performance of its bancassurance partners, including HDFC Bank, could have a material adverse impact on its business, profitability, results of operations and financial condition.

3) Changes in regulation and compliance requirements could have a material adverse effect on its business, financial condition, results of operations and prospects.

4) Company and certain of its Subsidiaries, Directors, Promoters and Group Companies are involved in certain legal proceedings which, if determined against us, may adversely affect its business and financial condition.

5) Its results are dependent on the strength of its brand and reputation, as theyll as the brand and reputation of other HDFC group entities.

6) Variation in its persistency experience from its estimates, as well as concentrated surrenders, may materially and adversely affect its cash flows, results of operations and financial condition.

7) Interest rate fluctuations may materially and adversely affect its profitability.

8) They face significant competition and its business and prospects will be materially harmed if they are not able to compete effectively.

9) Misconduct by its agents, employees, distribution partners or other third parties is difficult to detect and deter and could harm its brand and its reputation, or lead to regulatory sanctions or litigation against us.

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

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Recommendation / Investment strategy – HDFC Standard Life Insurance IPO


1) On the upper price band of Rs 290 and on restated FY17 EPS of Rs 4.5, P/E ratio works out to 64x. Even based on last 3 years restated EPS of Rs 4.3, P/E ratio works out to 67x. Means, company is asking higher price band of Rs 290 in the P/E ratio of 64x to 67x. Its listed peers like SBI Life Insurance is trading at P/E ratio of 70x (Highest) and ICICI Pru Life is trading at P/E of 33x (Lowest) and industry average is 51. Hence HDFC Life issue price of Rs 290 at P/E of 64x-67x is over priced.  

2) Company revenues grew at 22% CAGR in the last 5 years. Its profits are grown at 19% CAGR in the last 5 years. However the issue price is highly priced. I would like to invest in such good companies if the shares are available at discount price posting listing. As of now, I would like to stay away from such high priced IPOs.

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.

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Suresh

HDFC Standard Life Insurance IPO – Should you invest or not

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