Grand Opening: HDFC Standard Life Insurance


NEW DELHI: HDFC Standard Life Insurance will hit the market on Tuesday with Rs 8,695 crore initial public offering (IPO).

The insurer on Monday raised Rs 2,322 crore from anchor investors, ahead of its initial public offer on Tuesday. Singapore’s sovereign wealth fund Temasek, Norwegian fund Norges, Kuwait Investment, T Rowe Price, Fidelity, Blackrock and JP Morgan are among the anchor investors, according to a regulatory filing.

Some analysts say valuations of the issue are a bit demanding, but given the insurer’s fundamentals, it can be a good long-term bet.

The issue price is Rs 275-290 price band. The minimum bid lot is fixed at 50 shares.

The IPO portion set aside for anchor investors is worth Rs 2,322 crore, said to be the largest ever, but sources say the company has received commitments for about Rs 50,000 crore, or 22 times the quota limit, ET reported.

At the upper end of the price band of Rs 290, the company would be valued at 4.03 times P/EV against less than 2 times P/EV for its regional peers.
Macquarie said that the return on embedded value (RoEV) for HDFC Life stood at 21.7 per cent in FY17, which was higher than 16.5 per cent that the stock of ICICI Prudential (IPRU) Life Insurance quoted at.

A cleaner measure of new business contribution is simply the value of new business (VNB)/opening EV. This measures the value contributed by a single year’s new business and is typically the key driver of value creation each year for a growing life company, the brokerage said.
This value stood at 9 per cent for HDFC Life, 8 per cent for SBIBSE 1.22 % Life and 5 per cent for ICICI Prudential Life in FY17.

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Even if we look at VNB multiples as P/EV, it may make less sense for high growth companies, the brokerage said.

HDFC Standard Insurance was started as a JV between HDFC and Standard Life Aberdeen. HDFC and Standard Life held 61.53 per cent and 34.94 per cent, respectively, in HDFC Life in March, 2017. Azim Premji Trust owns a 0.95 per cent.

The stock would be available at 4.2 times H1FY18 EV of Rs 14,010 crore (post issue). “Factoring in the parentage brand of HDFC, strong corporate governance and better than industry VNB margins along with high dividend payouts, we believe valuations are reasonable,” this brokerage said.

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Jaikishan J Parmar said the slight premium valuation is justifiable, considering consistent growth across premium categories, improving dividend payout over last four years, strong parentage, trusted brand name, highest VNB margin (22 per for FY2017) and a well-balanced business mix.