SBI Life Insurance Company's USD 1.3 billion initial public offering is set to open for subscription on September 20, with a price band of Rs 685-700 per share.
The IPO by size is expected to be the largest in life insurance space in India and it would be the second life insurance company to list on bourses. ICICI Prudential Life Insurance was the first to tap capital market, in September 2016.
India's largest private life insurer will close its public issue on September 22.
Equity shares are proposed to be listed on BSE and National Stock Exchange of India.
The book running lead managers to the offer are JM Financial Institutional Securities, Axis Capital, BNP Paribas, Citigroup Global Markets India, Deutsche Equities India, ICICI Securities, Kotak Mahindra Capital Company and SBI Capital Markets.
Here are 10 things you should know before investing in country's largest ever life insurance IPO:-
SBI Life was established as a joint venture between the State Bank of India and BNPPC (BNP Paribas Cardif SA), an insurance subsidiary of BNP Paribas, in 2001.
It is India's largest private life insurer, in terms of New Business Premium generated in each fiscal year, since FY10. It has also increased its market share of new business premium generated among private life insurers in India, from 15.87 percent in FY15 to 20.04 percent in FY17 (Source: CRISIL Report).
In FY17, it has a market share of individual rated premium of 20.69 percent among private life insurers in India and 11.16 percent of the entire life insurance industry in India.
As of July 31, 2017, it had a comprehensive product portfolio of 37 individual and group products (of which eight products are group products), including a range of protection and savings products to address the insurance needs of diverse customer segments.
* New Business Premium (NBP) and Annualized Premium Equivalent (APE)
About the issue
The 12-crore shares IPO of SBI Life comprises of an offer for sale of up to 8 crore equity shares by country's largest lender State Bank of India and up to 4 crore shares by BNP Paribas Cardif SA.
The issue includes a reservation of up to 20 lakh shares for purchase by eligible employees who will get those shares at a discount of Rs 68 per share to final IPO price; and a reservation of up to 1.2 crore shares for purchase by shareholders of State Bank of India. The offer will constitute up to 12 percent of post-offer paid-up equity share capital.
The life insurer is looking to raise Rs 8,083-8,260 crore through the issue, at a price band of Rs 685-700 per share (after a discount of Rs 68 per share to eligible employees).
Bids can be made for a minimum of 21 equity shares and in multiples of 21 shares thereafter.
Objects of the issue
It is an offer for sale; hence the company will not receive any proceeds from the issue.
The main object of SBI Life's offer is to achieve the benefits of listing equity shares on stock exchanges and to carry out sale of up to 12 crore shares by the promoter selling shareholders.
> SBI Life is one of the largest private life insurers with a consistent track record of rapid growth.
> The insurer has received iAAA rating for its claims paying ability from ICRA and AAA/stable rating for financial strength from CRISIL.
> The company believes that it benefits significantly from the established brand equity of State Bank of India and its affiliates; and also benefits from brand and market reputation of BNPPC, the insurance subsidiary of BNP Paribas with operations across 36 jurisdictions.
> It has developed a multi-channel distribution network comprising an expansive bancassurance channel, including State Bank (the largest bancassurance partner in India), a large individual agent network comprising 95,177 agents as of July 31, 2017, as well as other distribution channels.
> Its strong focus on customer service is a key factor for sustained growth.
> It has sustainable business model driven by robust financial position, superior investment performance, diversified product portfolio and effective risk management.
SBI Life's new business premium, gross written premium, individual rated premium, new business annualised premium equivalent increased at a CAGR of 35.45 percent, 27.80 percent, 36.59 percent, and 37.90 percent, respectively, between FY15-17.
SBI Life's new business premium generated increased at a CAGR of 35.45 percent and individual rated premium 37.90 percent in FY15-17, the highest among the top five private life insurers.
Based on the embedded value report issued by the independent actuary, its embedded value was Rs 16,537.9 crore as of March 31, 2017. Value of new business was Rs 1,036.8 crore in FY17 while value of new business margin was 15.4 percent.
For the quarter ended June 2017, its 13th month persistency ratio was 81.97 percent and 61st month persistency ratio was 64.62 percent. Mis-selling ratio was 0.20 percent (Source: CRISIL report).
The life insurer has consistently maintained solvency ratio at over 2.00 for last five fiscal years, and at 2.11 as of June 2017, compared to the IRDAI mandated minimum solvency ratio of at least 1.50.
Assets under management (AUM) increased from Rs 71,338.93 crore in FY15 to Rs 97,736.603 crore in FY17 and was at Rs 1,01,226.03 crore as of June 2017.
Profit after tax increased at a CAGR of 8.24 percent from Rs 814.87 crore in FY15 to Rs 954.65 crore in FY17 and was at Rs 313.45 crore for June quarter.
Promoters hold 96.10 crore equity shares, constituting 96.10 percent of the total equity share capital.
Pre-Offer and the proposed post-offer shareholding of promoters:-
Top shareholders as on September 11, 2017
Arijit Basu is the managing director and chief executive officer of the company. He has over 34 years of experience in the field of banking.
Arundhati Bhattacharya is the nominee director of State Bank and the chairman of the company. She was appointed as a Nominee Director w.e.f. October 7, 2013. She joined the central board of directors of State Bank on August 2, 2013 and currently holds the position of chairman of State Bank. She has more than 39 years of experience in the field of banking and financial services.
Bhattacharya was involved in setting up several new companies/initiatives of State Bank including SBI General Insurance Company Limited, SBI Macquarie Infrastructure Fund, SBI SG Securities Limited, as well as the launch of new information and technology platforms such as mobile banking and financial planning in State Bank.
Management Organisation Chart:-
The office of the executive vice president and the chief of human resource and management services is currently vacant after Varsha Mondkar exited with effect from July 25, 2017.
SBI Life has declared dividends every year since fiscal 2012.
Risks and Concerns
Here are some risks and concerns pointed out by brokerage houses:-
> Significant deterioration in return ratios and a material slowdown in business growth would be the key risks
> Termination of, or any adverse change in bancassurance agreement with SBI.
> Company's business is subject to seasonal fluctuations in operating results and cash flow. Insurance volumes typically significantly increase in the final quarter of each fiscal year.
> Higher concentration of NBP (new business profit) generated by certain category of product.
> Adverse change in relationship with promoter & BNP Paribas Cardiff.
> Regulatory changes can have material impact on performance.
> Changes in interest rates may have a material adverse effect on the business and results of operations.
> Any increase in or realisation of its contingent liabilities.
> Reliance on independent contractors and service providers for various services.
> An inability to maintain the company’s 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 their business operations and prospects.
> Adverse macroeconomic conditions and financial markets in India and globally may have a material adverse effect on the business, results of operations and financial condition.Image source: RHP