SBI Life IPO plan gets IRDA approval

Mumbai/Chennai: The insurance regulator has approved SBI Life Insurance Co. Ltd’s application for an initial public offering (IPO) seeking to raise as much as Rs7,000 crore, the largest such share sale by a life insurer in India.

The Insurance Regulatory and Development Authority of India (IRDA) approved SBI Life’s IPO a few days ago, an IRDA official said on condition of anonymity.

SBI Life, which will be the second insurer after ICICI Prudential Life Insurance Co. Ltd to sell shares to the public in India, has hired BNP Paribas, Citi, Kotak Investment Bank and Axis Capital to manage the initial share sale.

The company could sell shares amounting to a 12% stake, raising Rs6,000-7,000 crore, said two people with direct knowledge of SBI Life’s plans, requesting anonymity.

SBI Life is a joint venture between State Bank of India (SBI) and BNP Paribas Cardif. SBI holds 70.1% and BNP Paribas Cardiff 26%. Private equity firm KKR and Singapore-government owned investment company Temasek hold 1.95% each in the life insurer.

SBI is likely to dilute around 8% and BNP Paribas Cardif, along with the others, the rest, said one of the two people.

The life insurer is expected to file draft share sale documents with the Securities and Exchange Board of India in the next few weeks, the two persons added.

SBI Life is the second largest private life insurer in India after ICICI Prudential. In December, KKR and Temasek bought 1.95% each at Rs460 per share, which valued the insurer at Rs46,000 crore.

“The company’s earnings should grow by at least 17% for the next few years, which is one of the best in the industry. State Bank of India has vast presence in the country, especially in the rural areas where other banks are not present. So, if the merchant bankers do not overprice the IPO, investors should choose to invest in SBI Life,” said Santosh Singh, head of research at Haitong Securities.

SBI Life has grown faster than most life insurers during the past financial year. The company collected the highest first year premium among private insurers in the last financial year. The insurer’s first-year premium went up 43% to Rs10,145.76 crore in 2016-17, according to IRDA. The company’s total premium grew by 33% to Rs21,015.13 crore.

Life insurers are typically valued using the appraisal value method, which is a combination of embedded value (EV) and structural value of the company. EV is based on the business written till date, while the structural value is based on the potential of the company to generate new business.

Valuation is also driven by market share, business growth, product portfolio, parentage and the strength of its distribution network.

Last year, ICICI Prudential sold shares worth Rs6,057 crore through an IPO and became the first insurance company to get listed. At the time of listing, ICICI Prudential was valued at Rs48,000 crore. At the end of March, the company’s EV stood at Rs16,184 crore. The company’s current market value is Rs70,239.46 crore.

At the end of March 2016, SBI Life’s embedded value was at around Rs12,999, according to a presentation by the company. According to current estimates by bankers and analysts, this value has gone up by at least 17%, which means the EV of SBI Life currently stands at around Rs15,200 crore.

SBI Life’s net profit grew 10.9% to Rs 954.65 crore in the year ended 31 March from Rs 861.03 crore in the previous year.