Brokerages largely recommend subscribing to the issue with a long term view, but point out the steep valuation of the issue despite strong fundamentals
The new entrant to primary market, HDFC Standard Life, is set to open its initial public offering (IPO) on Tuesday.
The Rs 8,695-crore issue has a price band of Rs 275-290 per share.
It would be the third life insurance company getting listed on bourses; and is the first initial public offering by a company promoted by HDFC, since the initial public offering of HDFC Bank in 1995.
The global co-ordinators and book running lead managers are Morgan Stanley India Company, HDFC Bank, Credit Suisse Securities (India), CLSA India and Nomura Financial Advisory and Securities (India). The book running lead managers are Edelweiss Financial Services, Haitong Securities India, IDFC Bank, IIFL Holdings and UBS Securities India. Equity shares are proposed to be listed on the BSE and the NSE
After the IPO, HDFC Life's market cap will range between Rs. 55,247 crore (lower price band) and Rs. 58,260 crore (upper price band).
The company raised Rs 2,32 crore through anchor investors on Monday
Brokerages largely recommend subscribing to the issue, but point out the steep valuation of the issue despite strong fundamentals. Hence, the recommendation remains on a long-term basis.
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The brokerage house highlighted the company’s strengths in terms of strong parentage and trusted brand along with having strong financial performance with consistent and profitable growth. At the same time, it pointed out risks in terms of regulatory concerns, rise in insurance claims and unfavourable change in interest rate, among others.
In terms of valuations, the issue is priced at P/IEV multiple of 4.7 times as against the peer average of 3.7 times.
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SMC Research highlighted that the company’s valuation and said that EPS and P/E of FY18 are Rs 5.52 and Rs 52.57 multiple, respectively. “No change in pre and post issue EPS, but Book Value has changed due to inclusion of H2FY18 PAT even though the company is not making fresh issue of capital,” the brokerage house said in its report.
It also said that the company was one of the most profitable private life insurers, enjoying a healthy VNB margin of 22% in FY17 along with a growing market share. “With the outlook of insurance sector being bright, HDFC Standard Life is well-positioned to enjoy years of strong growth and enhanced profitability. A long term investor may opt for the issue,” the report added.
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Geojit said that HDFC Life has a strong capital position with a solvency ratio of 201% as on H1FY18 compared to the IRDAI mandated solvency ratio of 150%.
Further, it also highlighted that India’s underpenetrated market was an untapped opportunity and lower penetration in life insurance provides ample scope for the company to grow its portfolio at a rapid pace.
While the valuation is steeper, its higher growth and better profitability may justify the premium valuation.
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Centrum too highlighted that at premium valuations, the company is leading in most of the parameters –highest renewal premium CAGR and VNB Margin.
“Going ahead, the company is expected to benefit largely from financialisation of household investments, under-penetration of insurance in India, vast bank assurance and private agent network along with its extensive reach and market share,” the brokerage said in its report.
It also believes that the company will be able to attract adequate investor interest on the basis of its robust fundamentals compared to peers and strong parentage.
“Given the mature valuations, investors can subscribe to the issue from a long term perspective. It must be noted that since the issue is being offered at expensive valuation, it may not attract major listing gains,” the report added.
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The brokerage also highlighted steep valuations, but added that the company is a subscribe with a long term view based on strong parentage and strong fundamentals.
SPA Research | SubscribeSPA Research said that a strong parentage, highly profitable product mix, multi channel distribution, improved persistency and healthy return ratios makes the issue attractive from long term perspective. The brokerage recommends subscribe to the issue as a good long term investment.