{"id":10048,"date":"2017-09-19T17:26:13","date_gmt":"2017-09-19T11:56:13","guid":{"rendered":"https:\/\/www.moneyworks4me.com\/investmentshastra\/?p=10048"},"modified":"2020-03-05T12:33:31","modified_gmt":"2020-03-05T07:03:31","slug":"sbi-life-ipo-stretched-valuation-euphoria-in-ipo-space","status":"publish","type":"post","link":"https:\/\/www.moneyworks4me.com\/investmentshastra\/sbi-life-ipo-stretched-valuation-euphoria-in-ipo-space\/","title":{"rendered":"SBI Life IPO \u2013 Stretched Valuation; Euphoria in IPO Space"},"content":{"rendered":"<p><strong>Issue Date:<\/strong>\u00a0Sep 20, 2017 &#8211; Sep 22, 2017<\/p>\n<p><strong>Face Value<\/strong>:\u00a0INR 10 per equity share<\/p>\n<p><strong>Issue Type<\/strong><span style=\"color: #0000ff;\">:<\/span>\u00a0Book Built Issue IPO<\/p>\n<p><strong>Issue Size<\/strong><span style=\"color: #0000ff;\">:<\/span>\u00a0Offer for Sale of 120,000,000 Equity Shares<\/p>\n<p><strong>Issue Size<\/strong><span style=\"color: #0000ff;\">:<\/span>\u00a0Rs 8,400.00 Cr<\/p>\n<p><strong>Price Band<\/strong><span style=\"color: #0000ff;\">:<\/span>\u00a0Rs 685 &#8211; Rs 700 Per Equity Share<\/p>\n<p><strong>Market Lot<\/strong><span style=\"color: #0000ff;\">:<\/span>\u00a021 Shares approx<\/p>\n<p><strong>Minimum Order Quantity<\/strong>:\u00a021 Shares<\/p>\n<p><strong>Listing at<\/strong>:\u00a0BSE, NSE<\/p>\n<p><strong>\u00a0<\/strong><strong>About the company<\/strong><\/p>\n<p>SBI Life Insurance Company Limited (SBI Life) is the largest life insurance company in\u00a0 India in terms of New Business Premium (NBP) with the highest 20.04% market share. It was incorporated in March 2001 as a joint venture between largest PSU bank SBI(74%) and global insurance company BNP Paribas Cardif (BNPPC) (26%) with equity capital of Rs.125Cr. Initially, the business was operated only through the agency channel with 719 advisors and by end of FY03 bancassurance channel was launched, which has now become an immense network covering rural and urban India. In FY06,SBI Life became the first private life insurance company to achieve profits above the breakeven with Rs.2.03Cr profit. Today, they have pan-India presence through multi-level distribution channels comprising 803 branches with an AUM of Rs.101226Cr.<\/p>\n<ul>\n<li>SBI Life, sixteen year old company is the most trusted name in the Indian life insurance industry.<\/li>\n<li>They lead with highest New business premium in life insurance segment with 20.04% share growing with CAGR of 35.45% during FY15-17.<\/li>\n<li>They are among the top 4 private life insurers having 24.2% CAGR renewal premium growth in FY14-17 and being the most cost efficient with just 11.6% total cost ratio. SBI life\u2019s 61-month persistency stands at 67.2% whereas industry average is below 60% confirming customer satisfaction.<\/li>\n<li>Multichannel distribution network is the strength of business comprises the largest bancassurance network with 26,367 branches and the most productive agency workforce of 95,355 individual agents.<\/li>\n<\/ul>\n<p><strong>MoneyWorks 4me Opinion<\/strong><\/p>\n<p>SBI Life Insurance ranks higher than any other private life insurer. It leads in new business premium growth, claim settlement ratio and product mix.<\/p>\n<p>SBI Life leverages SBI\u2019s, Punjab Sind Bank\u2019s and South Indian Bank\u2019s branches and individual agents to promote Life insurance. After LIC, SBI Life is the biggest life insurer. Due to scale, the cost of operations is quite Low for SBI life.<\/p>\n<p>We like SBI Life over ICICI Prudential Life due to Stable product mix due to slighlty lower share of ULIPs and more endowment\/moneyback share. Number of policies written by SBI life is more than peers but average premium is low due to lower share of ULIPs.<\/p>\n<p>Current growth rates in number of policies is low but due to better product mix of ULIPs, total premium growth looks high. We are of opinion that ULIPs are cyclical in nature and their attractiveness falls when equity markets don\u2019t do well.<\/p>\n<p>We observe that SBI Life has good persistency ratio of &gt;60% in 61<sup>st<\/sup> month (meaning 60%+ people do not stop paying premium at the end of 5<sup>th<\/sup> year)<\/p>\n<p>Almost all Indian life insurers are engaged in insurance cum investment product mixed with cash back\/ endowment\/ ULIPs policies due to poor demand for pure term life insurance. Historically, an Indian consumer has had very low debt level and sufficient savings for his family to fall back upon. Probably this is the reason why Term Life insurance never gained popularity across country. Insurance companies in India have tried to penetrate the market by selling a mix of investment and risk product. Agent led push model helped Insurance companies to position themselves as low risk investment pseudo asset class to diversify from FDs, Real Estate and Gold. Most of the policies are sold on the basis of promising large bullet pay-out which is back-loaded \u2013 10 to 15 years down the line or regular small income for long periods. If we go back to compound interest rate tables, we would realize that the returns are lower than 4-6% p.a. on our invested capital at piddly risk cover of 3-4X. So basically, the customer ends up buying an investment option substandard to Fixed Deposits and risk cover which is insignificant for family to fall back upon in case of demise.<\/p>\n<p>Talking about the future, we agree with the management that market is quite underpenetrated and underinsured. If we remove investment cum insurance products, only protection products form very low proportion as % of GDP. We believe with more than 20% population coming in working age over next decade, the growth in insurance product is imminent. We also acknowledge investments in financial assets story due to which insurance companies are likely to benefit.<\/p>\n<p>However, we do not believe that new business premium would rise at 30%+ rate as incremental growth is coming from ULIPs due to high returns given by equity and debt markets. Investors are craving for higher returns due to fall in real estate growth, gold and fixed deposits. Due to volatile nature of debt and equity markets, the acceleration in ULIP growth will subside to some extent. One of the brokerage houses, Credit Suisse, rightly labelled Indian Life Insurers, <em>\u201cAMCs dressed up as insurers.\u201d<\/em><\/p>\n<p>In our opinion, Price to Embedded Value is the right metric to value life insurance companies. If we do the reverse calculation of issue price, it factors in growth in excess of 20-25% growth in premium over 5-7 years. We would like to highlight that one shouldn\u2019t apply more than 1.5-2X multiple on Embedded value as cross cyclical ROEs can\u2019t exceed a particular range of 15-18%.<\/p>\n<p>On basis of stretched valuation, we recommend <strong>AVOID.<\/strong><\/p>\n<p>We would like to observe one entire cycle to make better estimates of fair value. We have often seen that a particular sector becomes favorite of the market and new listings take advantage of it to list at premium valuations. We are cautious on entire financial space as it underestimates risk of business model and we believe its not the right time to get aggressive at such peak valuations. Its better if you trim down your Insurnace and NBFC holdings. <a href=\"https:\/\/www.moneyworks4me.com\/pdf\/demo\/snapshot.html\">Click here to know risks in your portfolio for free.<\/a><\/p>\n<p><strong>As lot of hands are chasing handful of stocks, IPO issues may experience rapid increase in share price in short term. You may wish to \u2018speculate\u2019 with a small capital.<\/strong><\/p>\n<p><strong>But as an advisor, our duty to inform you what is right<\/strong> and refrain you from risk taking behaviour in this market. We will definitely recommend you select issues which are worth investing. We are equally interested in making money as you are!<\/p>\n<p>If you liked what you read and would like to put it in to practice <a href=\"https:\/\/www.moneyworks4me.com\/registration\/\">Register at MoneyWorks4me.com<\/a>. 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And more<\/b><b>\u2026.<\/b><b>Puchho<\/b> <b>Befikar<\/b><\/span><\/p>\n<div class=\"puchhoBefikarIcon\"><img decoding=\"async\" loading=\"lazy\" class=\"\" src=\"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-content\/uploads\/2018\/05\/puchho-befikar-logo.png\" width=\"59\" height=\"46\" alt=\"\" title=\"\"><\/div>\n<p><b><i>Kyunki<\/i><\/b> <b><i>yeh<\/i><\/b> <b><i>paise<\/i><\/b> <b><i>ka<\/i><\/b> <b><i>mamala<\/i><\/b> <b><i>hai<br \/>\n<\/i><\/b><a href=\"https:\/\/www.moneyworks4me.com\/\" target=\"_blank\" rel=\"noopener\">Start Chat<\/a> | <a href=\"https:\/\/www.moneyworks4me.com\/\" target=\"_blank\" rel=\"noopener\">Request a Callback<\/a> | Call 020 6725 8333 | <a href=\"https:\/\/api.whatsapp.com\/send?phone=918055769463&amp;text=Need%20any%20help?\" target=\"_blank\" rel=\"noopener\">WhatsApp 8055769463<\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Issue Date:\u00a0Sep 20, 2017 &#8211; Sep 22, 2017 Face Value:\u00a0INR 10 per equity share Issue Type:\u00a0Book Built Issue IPO Issue Size:\u00a0Offer for Sale of 120,000,000 Equity Shares Issue Size:\u00a0Rs 8,400.00 Cr Price Band:\u00a0Rs 685 &#8211; Rs 700 Per Equity Share Market Lot:\u00a021 Shares approx Minimum Order Quantity:\u00a021 Shares Listing at:\u00a0BSE, NSE \u00a0About the company SBI [&hellip;]<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[822],"tags":[],"modified_by":"MoneyWorks4me","_links":{"self":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts\/10048"}],"collection":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/comments?post=10048"}],"version-history":[{"count":0,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts\/10048\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/media?parent=10048"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/categories?post=10048"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/tags?post=10048"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}