SBI Life: India’s first billion-dollar insurance IPO opens today

All set for the stock exchange debut.
All set for the stock exchange debut.
Image: Reuters/Shailesh Andrade
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After a wait of seven years, the Indian financial market has witnessed a billion-dollar initial public offering (IPO).

On Sept. 20, SBI Life’s IPO of Rs8,400 crore ($1.3 billion) opened, making it the first financial sector firm to join the billion-dollar club. The last such instance was in 2010, when Coal India sought to raise Rs15,500 crore—it was oversubscribed by 15 times.

Other companies in this big boys’ club are Reliance Power, DLF, Cairn India, National Hydroelectric Power Corporation, National Thermal Power Corporation, and Tata Consultancy Services, according to data compiled by PRIME Database, a capital markets information provider.

SBI Life is a joint venture (JV) between the country’s largest lender, State Bank of India, and BNP Paribas Cardif, the insurance arm of France’s BNP Paribas. While SBI will sell 8% of its stake in the JV, BNP Paribas Cardif will divest 4%. SBI Life shares will be priced at Rs685-700 each, driving the total valuation to an impressive Rs70,000 crore.

It is also the third insurance company to list on the stock exchange. ICICI Prudential Life Insurance Company was the first to do so last year and was valued at Rs48,000 crore. Last week, ICICI Lombard came out with its IPO and was valued at nearly Rs30,000 crore.

Even though SBI Life’s valuation is higher, analysts say it is justified.

“SBI Life, with its strong brand name and wide distribution network, is one of the best plays for (the) Indian life insurance industry. We believe the premium valuation for SBI (Life) is justified due to its higher incremental market share gain,” Jaikishan J Parmar, analyst at domestic brokerage house Angel Broking, said in a note.

The company has also been leading the pack in terms of growth. Its new business premium improved by 35% between FY15 and FY17, higher than those of competitors. It also improved its assets under management faster than others. In FY17, SBI Life’s net profit rose 11% to Rs955 crore.

Overall, the growth potential of the insurance industry remains robust.

“The market is still under-penetrated in India,” explained Karthik Srinivasan, analyst at credit rating firm ICRA. India’s insurance density or premium paid per capita is still low at $59.70, compared to Asia’s average of $343.10 and the global $638.30, a report by international reinsurer Swiss Re said.

Moreover, as returns in real-estate and gold become less attractive, we’ve seen retail savings flow back into mutual funds and insurance. As a result, we expect the sector to grow over 20% in the near-term,” Srinivasan said.

But there are other hidden jewels, too.

For instance, if Life Insurance Corporation of India (LIC), the country’s largest insurance company, decides to list, it will probably be India’s most-valued stock, according to finance minister Arun Jaitley.

However, LIC has no such plans. But others, including HDFC Life, New India Assurance, GIC Re, and Reliance General Insurance are lined up.

So SBI Life may just have lit the fuse.