SBI Life insurance IPO and Current GMP

SBI Life Insurance Company Limited ( Incorporated in 2000) is leading private life insurer. It is a joint venture between the State Bank of India and BNPPC(an insurance subsidiary of BNP Paribas), BNPPC has operations across 36 countries across the world and is among the leading life insurance company across the world whereas  BNP Paribas is one of top 10 global financial institution in terms of revenue.

The Company has developed a multi-channel distribution network comprising bank branches of SBI,individual agent network of 93,849 agents.It has also developed other distribution channels including direct sales and sales through corporate agents, brokers, insurance marketing firms and other intermediaries.

SBI Life Insurance raises Rs 2,226 crore from 69 anchor investors.

Please check the list of Anchor investors.

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Issue Details

IPO Open: 20-September-2017
IPO Close: 22-September-2017
IPO Size: Approx Rs.8400 Crore (Approx)
Face Value: Rs. 10 Per Equity Share
Price Band: Rs. 685 to 700 Per Share
Listing on: BSE & NSE
Equity Shares: 120,000,000

Market Lot:

Shares: Apply for 21 Shares (Minimum Lot Size)
Amount: Rs. 14700

IPO Allotment & Listing:

Basis of Allotment: 27-September-2017
Refunds: 28-September-2017
Credit to demat accounts: 29-September-2017
Listing: 03-October-2017

Lead Managers

Axis Capital Limited
BNP Paribas
Citigroup Global Markets India Private Limited
Deutsche Equities India Private Limited
ICICI Securities Limited
JM Financial Consultants Private Limited
Kotak Mahindra Capital Company Limited
SBI Capital Markets Limited

Registrar to the IPO

Karvy Computershare Private Limited.

The promoters :

State Bank and BNPPC( an insurance subsidiary of BNP Paribas )

Object of the issue :

a. to achieve the benefits of listing Equity Shares on the Stock Exchanges and
b. to carry out the sale of up to 120,000,000 Equity Shares by the Selling Shareholders.

sbi lifeGlobal Life Insurance Industry

Growth in the global life insurance industry has been almost stagnant after the financial crisis in 2008. Before the crisis, the total premium of the industry grew at 4% CAGR (in nominal dollar terms) during 2003 to 2007.However, there was a revival in growth from 2014 onwards, as the global life insurance industry recorded 3.5% CAGR growth during 2013-2016 on the real premium basis.

Growth was primarily driven by  China, where premium grew over 15% CAGR during the period.(Source: CRISIL Report)

Growth in the post-crisis era has been primarily driven by emerging markets, where premiums grew 6.6% CAGR during 2009 to 2016.Growth in the Indian life insurance industry has been in-line with the emerging market average during the period.(Source: CRISIL Report)

Asia is the largest market for life insurance, accounting for 38% of the premium collected. India’s share in the global market was 2%.(Source: CRISIL Report)

globalWhen it comes to the global insurance industry, 55% of the premium comes from life insurance (and the rest from non-life), compared with 78% for India and 50% for other emerging markets. At 3.5%, the global life insurance industry’s penetration is 80 basis points more than that of India’s. (Source: CRISIL Report)

chartChina’s life insurance penetration was low and stagnant at 1.7% from 2006 to 2014. However, the industry’s growth has been stupendous over the past decade, with insurance density quadrupling from US$ 34.1 in 2006 to US$ 127 in 2014. China was in a high economic growth phase during this period, with its nominal  GDP growing at 18% CAGR, according to the International Monetary Fund (IMF).(Source: CRISIL Report)

In purchasing- power parity (PPP) terms, China’s per capita GDP increased from US$ 5,800 in 2006 to US$ 13,130 by 2014.

China’s scorching growth subsequently led to soaring insurance density. Therefore, the life insurance industry grew 4x during 2006 to 2014 on a total-premium basis. (Source: CRISIL Report)

Penetration of Insurance in India

At current prices, India’s GDP was ₹151.9 trillion as of fiscal 2017. India’s life insurance penetration stood at 2.7% in 2016, compared with 4.4% in 2010. Among Asian countries, life insurance penetration in Thailand, Singapore and  South Korea were at 3.7%, 5.5%, and 7.4%, respectively, in 2016. Hence this suggests the untapped potential of the Indian life insurance market.

The protection gap for India stood at US$ 8.5 trillion as of 2014, which was much  higher compared with its Asian counterparts. The protection margin for India was highest among all the countries at 92% in Asia Pacific.(Source:  CRISIL Report)

With India expected to be the fastest-growing Asian economy GDP increasing  at 10% CAGR in the next five years (in dollars, current prices), according to IMF  forecast (published in April 2016) the Indian life insurance industry seems poised for strong growth in the years to come. (Source: CRISIL Report)

As per IMF data, India is expected to grow at a significantly faster rate as compared with China and the rest of the world.Therefore, increasing per capita GDP will fuel growth in the life insurance industry, evidenced in China’s scenario.The per capita GDP for India over the next five years (2017 – 2022) is expected to grow at 8.5% CAGR as compared with 4.7% in the 97 previous  five  years.  Further,

Further,the prevailing low insurance density and penetration in the country  will also support strong growth in the life insurance sector on account of the low base. (Source: CRISIL Report )

Growth projection for different countries

growthNegative

It’s Company, Directors, Promoters and certain Group Companies are involved in certain legal and other proceedings.

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.

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.

A significant proportion of its New Business Premiums are generated by a certain category of products. Any adverse regulatory 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.

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 our business, results of operations and financial condition.

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.

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

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Any actual or alleged misconduct or fraudulent activity, including any mis-selling by its employees, agents or other intermediaries may result in customer claims or regulatory action against the company, which could adversely affect its reputation, business prospects, financial condition and results of operations.

An inability to verify the accuracy and completeness of information provided by  or on behalf of its customers and counterparties may subject to company to fraud, misrepresentation and other similar risks, which could adversely affect its business, financial condition and results of operations.

Its business reputation is critical to maintaining market share and growing its business and any adverse publicity may have a material adverse effect on its  business, prospects, financial condition and results of operations.

Any catastrophic event, including any major natural disaster, could result in significant claims which could have a material adverse effect on its business, prospects, financial condition and results of operations.

Company are subject to various credit risks in the course of its operations which may expose us to significant losses.

Company do not own the “SBI” trademark or the “SBI Life” logo, and the termination of the SBI Trademark License Agreement with State Bank or otherwise inability to use the “SBI” name or the “SBI Life” logo may materially and adversely affect its business, prospects, financial condition and results of operations.

Company benefit from its relationship with State Bank and BNPPC, in particular  drawing from their established brand equity and goodwill among customers. Any adverse change in these relationships may adversely affect its business and financial performance.

Positive

Largest private life insurer with a consistent track record of rapid growth.

Significant brand equity and pre-eminent Promoters.

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

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

  1. Robust financial position supported by high operating efficiencies.
  2. Superior investment performance.
  3. Diversified product portfolio.
  4. Effective risk management

Strong focus on customer service standards.

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

In the year to March, its mis-selling ratio of 0.20 percent was the lowest among the top five private life insurers, compared to ICICI Prudential’s 0.76 percent. In the year to March, SBI Life had the highest persistency ratio among the top five private life insurers.

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Business Strategies

Capitalize on insurance industry growth opportunities.

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

Enhance brand equity and continue to focus on customer satisfaction.

Leverage technology to improve operating efficiencies and support growth Financial.

  • SBI Life’s net worth was Rs 5,552 crore as of March, according to its red herring prospectus.
  • The embedded value, the consolidated value of shareholders’ interest in the business, rose 32 percent in the year to March.
  • At the upper end and lower end of the price band, the stock will trade at 4.23 times and 4.14 times its embedded value, respectively.
  • It earned Rs 1,037 crore in new business at a margin of 15.4 percent in the year to March.
  • SBI Life’s net premium rose 33 percent to Rs 20,850 crore for the year ended March.
  • It reported a profit of Rs 955 crore, up 13 percent year-on-year.
  • SBI Life has declared dividends every year since 2012.

Peer Comparison

The company has a market share 20.69 percent among private life insurers and 11.16 percent of the entire industry. It’s has only one listed rival in ICICI Prudential Life Insurance Company. Another private rival, HDFC Standard Life, is also awaiting the market regulator’s nod for its initial share sale.

Financial and Valuations

Total income/net profits of Rs. 17369.42 cr. / Rs. 727.75 cr. (FY14), Rs. 23186.49 cr. / Rs. 814.87 cr. (FY15), Rs. 19119.72 cr. / Rs. 844.10 cr. Rs. 30277.51 cr./ Rs. 954.65 cr. (FY17). For Q1 of the current fiscal, it has reported a net profit of Rs. 313.45 cr. on a total income of Rs. 6388.37 crore.

Comapany 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.427/- which is at P/E ratio of 36x. Means SBI Life issue price at P/E ratio of 73x to 78x is overpriced.

Grey market premium

Current Grey market premium is Rs. 19/-

DISCLAIMER

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here.

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