IPO Rating – 57 (Investment recommended)
About the issue
SBI
Life Insurance was formed in 2001 as a JV between State Bank and BNPPC. BNPPC
is a subsidiary of BNP Paribas and is one of the leaders in the credit life
insurance business globally.
SBI
Life Insurance has grown its presence and increased its market share in new
business premium generated among private life insurers to 20.04% in FY17 as
againsy 15.8% in FY15. It also enjoys market share of 11.16% in individual
rated premium considering the entire life insurance industry.
SBI Life Insurance’s AUMs as of March 31, 2017 stand at Rs.71,338cr and its AUMs were the second highest amongst the top five private life insurers.
Gaining market share
We see
that SBI's AUMs have grown at a rate much higher than ICICI Prudential Life
Insurance. This indicates that SBI's increased penetration due to its rural
reach and branch network has benefited the company. Also, due to government's
various insurance schemes like Atal Pension Yojana, Pradhanmantri Suraksha Bima
and Pradhan Mantri Jeevan Jyoti Yogna seeing traction, the growth from FY15 was
much higher and we see SBI has benefited the most from the government's focus on
insurance for the masses.
Merger of affiliates will strengthen Bancassruance channel sales
Better operating metrics
Unit-linked products seeing traction
Industry and outlook
Valuation and outlook
Our View
The
share of Bancassurance as a channel has increased from 47.8% in FY15 to 53% in
FY17. We see the merger of affiliates can further strengthen this channel and
increase the new business premium going forward. The company’s new business
premium has grown at higher than industry growth of 35.4% over FY15-17.
The
company’s solvency ratio stands at 2.04x, which is better than the IRDAI
mandated limit of 1.5x. Also, we see that company is improving its operating
efficiency and has improved opex ratio to 7.8% vs 9.07% in FY15. This was also
largely driven by increase in new business premium, leading to better margins.
Consequently, the cost ratio also saw improvement from 13.7% in Fy15 to 11.5%
in FY17.
Unit-linked products seeing traction
The
company has highest exposure to unit-linked products, which contributed 78.9%
to the individual new business premium in FY17. This is followed by
Participatory products which contributed 23.4%. We see that company has been
not only been able to grow its offerings, but it has been able to get renewals
with renewals premium growing at strong 24.7% YoYy in FY17.
Industry and outlook
Global
life insurance industry started reviving post FY14 and started returning to the
growth rates seen prior to FY2008. Within the insurance industry, life
insurance constitutes 55% of the total share. Indian life insurance industry is
the tenth largest in world and fifth largest in Asia. India’s insurance
industry's AUMs grew at 19% CAGR over FY2001-2017. However, the penetration
still stood at 2.7% in 2016, below the other Asian nations like Thailand
(3.7%), Singapore (5.5%) and South Korea (7.4%).
As the
growth in GDP mirrors the growth in premium, we expect the insurance industry
to grow at high single digit. Also, we see that non-linked insurance, which has
traditionally been most favoured, is now giving way to linked products. We see
SBI to benefit from this trend and its offering is likely to find traction in
the market.
We see
that SBI Life Insurance is growing at a rapid pace benefiting from its brand,
higher reach and penetration, utilisation of its bancassurance channel and
favourable government policies.
Looking
at the valuation, we can compare the company with ICICI Prudential Life
Insurance, which is the only listed insurer as a peer.
Our View
We see
that valuing SBI Life Insurance on P/IEV basis, the issue looks ‘high priced’
as compared to ICICI Pru :Life Insurance. However, considering the splendid
growth in AUMs and IEV that SBI Life Insurance has seen, we believe the company
commands premium, so we recommend investors to subscribe to the IPO.
*40 or lower – Avoid Investment, 41 to 45 – Risky, 46 to 50 – Invest with limited exposure, 51 to 55 – Investment recommended, 56 & above – Excellent Investment
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