Although analysts are not expecting a blockbuster listing, a small premium to the issue price could well be on the cards.
HDFC Standard Life Insurance Company, which recently concluded its Rs 8,695-crore initial public offering, is likely to list a a slight premium when it debuts on the stock market debut on Friday, experts said.
Although analysts are not expecting a blockbuster listing, a small premium to the issue price could well be on the cards thanks to the quality of its earnings and management pedigree.
The IPO, which was open for subscription on November 7-9, was subscribed 4.89 times at a price band of Rs 275-290 per share. The shares will be listed on the BSE and the NSE on Friday.
“Despite the disappointment from recent IPOs from insurance space, we are expecting HDFC Standard Life to list with some premium. It should not be a gung-ho listing but HDFC Standard Life deserves some premium compare to its peers due to the quality of its earnings and management,” Santosh Meena, Sr Research Analyst, Swastika Investmart told Moneycontrol.
At the upper price band, total issue size stands at Rs 8,695. The issue consists of the only offer for sale (OFS) wherein the promoters and existing shareholders will dilute 30 crore shares of the company.
The insurer has a healthy balance sheet and has delivered a RoE of 25.6 percent, RoIC of 40.7 percent and Operating Return on Embedded Value (RoEV) of 21.7 percent during FY17.
“We see stock listing little above its issue price. The company has disclosed its Embedded Value (EV) at Rs 14,011.4 cr, comprising of the Adjusted Net worth of Rs 4,961.8 cr and value in force of existing business at Rs 9,049.6 cr,” Atish Matlawala, Senior Analyst, SSJ Finance & Securities told Moneycontrol.
“At the price of Rs 290 the issue is offered at 4.1x its reported embedded value as on 30th September 2017. This is comparable to its listed peers but one thing that sets HDFC Life apart is its brand value,” he said.
Jimeet Modi, CEO, Samco Securities also says that the listing of HDFC Standard Life IPO will not be a blockbuster, but at best it will hover around the issue price given the excellent pedigree of the management.
“The company is professionally managed with a focus on creating value for both the policyholders and shareholders. Insurance is a business of size and scale which the HDFC group has very well nurtured and made it scalable,” he said.
HDFC Life has a broad, diversified product portfolio covering five segments across the individual and group categories, namely participating, non-participating protection term, non-participating protection health, other non-participating and unit-linked insurance products.
Most brokerage firms gave a subscribe recommendation to the issue citing the possibility of higher earnings growth and quality of management. The issue was the price with premium valuations so investors can at best expect muted opening on Friday.
At an upper price band of Rs 290, HDFC Life was priced at P/EV of 4.2x on H1FY18 EV, which is steeper compared to its peers. However, its higher growth and better profitability may justify the premium valuation.
“We had recommended 'Subscribe' to the issue only with a long-term perspective given a high valuation. Over the last one month, the trend of the market has loosened impacting all newly listed stocks especially ones which were priced at a premium valuation. Taking an example from peers like SBI Life and ICICI Pru, we can expect a muted listing,” Vinod Nair, Head Of Research at Geojit Financial Services told Moneycontrol.
“HDFC Life is the fastest growing life insurer in India. The company's NBP (New Business Premium) has grown at a CAGR of 17.8 percent over the last five years, while its immediate peers have grown at an average CAGR of 9 percent,” he said.Nair further added that untapped opportunity and lower penetration in life insurance provides ample scope for the company to grow its portfolio at a rapid pace. HDFC Life had an Embedded Value (EV) of Rs 14,010 cr as on H1FY18 with an operating RoEV of 21 percent.