Brokerage houses largely recommend subscribing to the issue, citing healthy valuations and better business prospects.
SBI Life's USD 1.3 billion (Rs
8400 crore ) initial public offering (IPO) is set to open on Wednesday.
The issue, with a price band of
Rs 685 to Rs 700 per share for its Rs 8400 crore issue, is expected to be the
largest in the insurance space. The IPO closes on September 22.
This IPO includes an initial
public offer of up to 120 million equity shares of face value of Rs 10 each
through an offer for sale by State Bank of India and BNP Paribas Cardif where
each will be selling up to 80 million equity shares and up to 40 million equity
shares, respectively.
The book-running lead managers to
the offer are JM Financial Institutional Securities Limited, Axis Capital
Limited, BNP Paribas, Citigroup Global Markets India Private Limited, Deutsche
Equities India Private Limited, ICICI Securities Limited, Kotak Mahindra
Capital Company Limited and SBI Capital Markets Limited.
In FY17, SBI Life's embedded
value was Rs 16,537.9 crore as of March 31, 2017. Their value of new business
was Rs 1037 crore while annualised premium equivalent stood at Rs 6727 crore
for FY17.
Brokerage houses largely
recommend subscribing to the issue, citing healthy valuations and better
business prospects.
Centrum
The broking firm too highlighted
that the valuation seemed fair compared to its peers. “Going ahead, the company
is expected to benefit further from the vast bancassurance and private agent
network along with its extensive reach and market share,” the report stated.
Further, it believes that the
company will be able to attract adequate investor interest on the basis of its
leadership position and expected healthy growth compared to peers.
“Given that the current
valuations are mature, investors can subscribe to the issue from a long term
perspective. However, it must be noted that, insurance being a steady business,
it may not attract major listing gains,” the broking firm said in its report.
Quant Capital | Fair valuations against listed peers
The brokerage house said that the
company’s issue price will value it close to Rs 70,000 crore. This is a steep
52 percent appreciation from the previous transaction in December 2017, where
investors KKR and Temasek Holdings bought 3.9% stake by valuing the insurer at
close to Rs 46,000 crore.
Having said that, the brokerage
said that the same is relatively fair against listed peers such as ICICI
Prudential Life, which is trading at 5.5 times EV FY17. “Considering the
company’s market leadership position, underpenetrated industry and healthy
growth opportunities, the valuation is fair,” the brokerage house said in its report.
Hem Securities | Rating: Subscribe
Hem Securities said that the
company is bringing the issue at P/E multiple of 55-56 on post issue Q1FY18
annualized EPS of Rs 12.54.
“At upper band, the company is
trading at P/EV multiple of 4.23x which is slightly higher. Although, it has
enjoyed superior growth but looking after valuation, we recommend subscribe on
issue for long term,” the broking firm said in its report.
GEPL Capital | Rating: Subscribe
GEPL Capital said that the IPO
stands to gain from operating leverage. At a P/B of 12.6xs of FY17 BV, we
believe that SBI Life demands a discount to its domestic peers, the brokerage
said in a report. It recommends subscribing to the issue.
SMC Research
Considering the valuation at
upper price band of Rs 700, SMC Research said that EPS and P/E of FY2017 are
Rs. 9.55 and 73.33 multiple, respectively. The broking firm also said that at a
lower price band of Rs. 685, P/E multiple is 71.75; at upper price band of Rs.
685 , book value and P/B of FY2017 are Rs. 58.79 and 11.91 multiple
respectively and at a lower price band of Rs. 685, P/B multiple is 11.65. It
sees no change in pre and post issue EPS and Book Value as the company is not
making fresh issue of capital.
Source - moneycontrol.com
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