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SBI Life: The $1 billion IPO is likely to open at a premium on Tuesday

Most brokerages believed that the premium valuations compared to ICICI Prudential and Max Financial are justified due to higher renewal premium growth since FY14. Hence, investors should see a positive listing.

October 02, 2017 / 11:36 AM IST

SBI Life Insurance, a subsidiary of the country's largest lender State Bank of India (SBI), will make its stock market debut on Tuesday and most likely at a premium of Rs 20-30, suggest experts.

SBI Life is a joint venture between SBI and BNP Paribas Cardif (BNPPC). Its initial public offer (IPO) of Rs 8,400 crore was oversubscribed 3.58 times between September 20 and September 22.

The portion meant for qualified institutional buyers (QIBs) was oversubscribed 12.56 times, while those meant for non- institutional investors and retail investors received 70 percent and 85 percent subscription, respectively, data available with the NSE showed.

“There could be a marginal premium that the stock could list at. The fact remains that the issue was priced to perfection. We may see a 5-7% listing premium but may not be more than that,” Jimeet Modi, CEO, SAMCO Securities told Moneycontrol.

The issue price is fixed at Rs 700 per share.

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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 were the book running lead managers to the offer.

Most brokerages and research firms tracking the issue had recommended a ‘subscribe’ rating and said that investors who missed out on the IPO could consider investing in SBI Life on every dip as it is a good long-term bet.

SBI Life is India’s largest private life insurer, in terms of New Business Premium, a position the company has maintained since FY10.

“Its renewal premium growth has increased at a CAGR of 24.2% from FY14 to FY17, highest among the top 4 private life insurers in India and also holds a commanding 20% share in New Business Premium in the private life insurance market,” said a report.

At a price band of 685-700, the asking valuations are 4.1-4.2x its FY17 Embedded Value of Rs165 per share as compared to P/E.V. of 3.75 of ICICI Prudential Life Insurance currently.

Most brokerage firms were of the view that the premium valuations compared to ICICI Prudential Life Insurance and Max Financial Services are justified due to higher renewal premium growth over three years (FY14-FY17); hence, investors should see a positive listing.

“The IPO can get listed at a premium of around Rs 20-22. The premium may go higher if market sentiment improves. One can hold it for a long-term perspective,” Sanjeev Jain, AVP - Equity Research at Ashika Stock Broking Ltd told Moneycontrol.

“The kind of growth company has reported over the last several years coupled with strong brand name and presence in the sector and industry seems in the phase of high growth, positively impacting SBI Life,” he said.

Jain further added that company's healthy market share and business growth justified its premium valuation. “One can hold it for long-term perspective to get a handsome return,” he said
Kshitij Anand is the Editor Markets at Moneycontrol.
first published: Oct 2, 2017 11:36 am

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