HDFC Standard Life IPO: Here’s All You Need To Know

HDFC Standard Life Insurance Company, a subsidiary of country’s largest mortgage lender HDFC, is looking to raise Rs 8,695 crore through an initial public offer that opens today. This will be the biggest IPO in the life insurance sector.

In the three-day offer, the company will issue up to 29.9 crore equity shares at a price band of Rs 275-290 apiece. At the upper end, it will command a valuation of Rs 58,076 crore, according to BloombergQuint’s calculations.

Morgan Stanley, HDFC Bank, Credit Suisse, CITIC CLSA Securities and Nomura Financial Advisory and Securities are managing the issue among others.

HDFC Life is a joint venture between HDFC and Standard Life Aberdeen plc.

About The IPO

The IPO is an offer for sale with HDFC selling 9.52 percent stake and its joint venture partner Standard Life Plc. divesting 5.4 percent. HDFC will raise nearly Rs 5,550 crore and Standard Life Rs 3150 crore at the top end of the price band.

Around 21.4 lakh shares, will be reserved for HDFC Life employees and another 8 lakh shares will be blocked for parent company HDFC’s employees. Around 2.9 crore shares or 1.5 percent will be reserved for the shareholders of HDFC. That leaves nearly 26.6 crore shares for the public.

Business

HDFC Life offers a product portfolio of 32 individual and 10 group products including protection, pension, savings and investment and health, along with children’s and women’s plans.

Pure protection products such as term insurance and annuities form 26 percent of new business premium compared to 5 percent for its peers. A higher proportion of such products reduces exposure to market volatility.

It has 66,372 individual agents – comprising 6.8 percent of all private agents in the Indian life insurance industry – and 125 banking tie-ups including HDFC Bank giving it access to a huge branch network. Nearly 60 percent of HDFC Life’s business comes from bancassurance and individual agents while the rest is from direct sales and brokers.

Financial Highlights

• HDFC Life’s net worth stood Rs 4,460 crore as of March 31, 2017
• The embedded value, the consolidated value of shareholders’ interest in the business, stood at Rs 14,011 crore as of Sept. 2017.
• At the upper end and lower end of the price band, the stock will trade at 4.16 times and 3.93 times its embedded value, respectively.
• It earned Rs 923 crore in new business at a margin of 22 percent in the year to March. The margin is the highest in the industry compared to ICICI Prudential’s 10 percent and SBI Life’s 15.4 percent
• HDFC Life’s net premium rose 13 percent to Rs 41,882 crore for the year ended March.
• It is among top three private life insurer in terms of new business premium which stood at Rs 8,696.4 crore as of March ended 2017
• Net profit rose 13 percent to Rs 886.9 crore year-on-year

Peer Comparison

HDFC Life is the country’s third-largest private sector life insurance company with 16.5 percent share of total private sector premiums in FY17. It is the fourth largest in the life insurance industry based on premium earned.

It has a solvency ratio of 1.9 compared to the statutory requirement of 1.5 times. A higher ratio indicates that the insurance company will fare better than peers if all liabilities and claims become due at the same time.

The company has the highest expense ratio of 12.6 percent as compared to its listed peers.

Valuations

Brokerages

ICICI Direct

• Recommends ‘Subscribe’
• Highest value of new business margins in industry, strong profitability
• Among top three private life insurers with strong product mix
• Strong distribution with bancassurance; focus rising on digital and agency

KRChoksey

• Recommends ‘Subscribe’
• Strong financial performance defined by consistent and profitable growth
• Growing and profitable multi-channel distribution footprint

Angel Broking

• Recommends ‘Subscribe’
• Consistent growth across premium categories, improving dividend payout over last four years, strong parentage, trusted brand name and highest VNB margin and well-balanced business mix remains key positives for the company
• Premium valuation is justifiable considering the above parameters

Watch the interview with the HDFC Life’s management here.