1
Please refer to important disclosures at the end of this report
1
1
SBI Life Insurance is a JV between State Bank of India (SBI - 57.6%) and BNP
Paribas Cardiff (5.2%). The insurer’s New Business Premium (NBP) grew 18%
from FY2017 to FY2020; it has a second position in private players with 20.7%
market share in New Business Premium in FY2020.
Strong premium growth has led to consistent market share gain: SBI Life has been
reporting strong growth in NBP, with 20% growth in FY2020 and 3 year CAGR of
42% vs. industry growth rate of 11% and 38%, respectively. Over FY2015-20, SBI
Life has improved its market share by ~260bps to 20.7% (FY2020).
Widest distribution network (bancassurance) backed by parent has ensured
healthy growth: SBI Life’s parent i.e. SBI has a mammoth network of ~22,141
branches and other bank tie-ups, which helps it in garnering new business on a
continuous basis. Low miss-selling, high claim settlement and low surrender ratios
will continue to drive the business of the company and we expect high double
digit growth to sustain for multiple years going ahead.
Cost structure best in the industry: Primary reason behind low opex ratio for SBI
Life is Parent SBI, as this business has been largely on auto pilot structure and
incremental cost for new business is less. Further, its low commission ratios and
high agent productivity also indicate the ability to drive growth while keeping costs
in check.
Outlook & Valuation: We believe the Indian Life Insurance industry is in a phase
of high growth and lower penetration will ensure that the growth remains higher
for next couple of years. SBI Life, with its strong brand name and wide distribution
network, is one of the best plays for Indian Life Insurance industry. Further,
historically, insurance products have seen growth post pandemic scenario. At the
cut off rate `742.6, the offer for sale is offered at 2.7x its Embedded Value of
`27,640cr. We believe SBI Life will continue to gain market share considering its
bancassurance strength and operational efficiency. Hence, we recommended
investors to “SUBSCRIBE” to the issue with long term perspective.
Key Financials
FY17
FY18
FY19
FY20
20,853
25,160
32,890
40,324
33
21
31
23
955
1,150
1,327
1,422
11
20
15
7
19,070
23,730
27,640
19
19
19
17
78
65
56
52
14
12
10
8
3.9
3.1
2.7
Valaution done on Cut off Rate, EV Embedded Value
SUBSCRIBE
Issue Open: June 15, 2020
Issue Close: June 15, 2020
Non-Retail 90% of issue
Retail 10% of issue
Promoters
63%
Others
37%
Issue Details
Face Value: `10
Present Eq. Paid up Capital: `1000cr
Offer for Sale: 2.1cr Shares
Post Issue Shareholding Pattern
Post Eq. Paid up Capital: `1,000cr
Issue size (amount): `1,579 cr
Cut off Rate: `742.60
Allocation
Jaikishan J Parmar
+022 39357600, Extn: 6810
SBI Life Insurance
OFS Note | Insurance
June 14, 2020
2
SBI Life Insurance| OFS Note
June 14, 2020
2
Issue Details
Issue Details
India’s biggest public-sector lender, State Bank of India (SBI) has decided to reduce
its stake in SBI Life Insurance Company by 2.10% through an Offer For Sale (OFS)
to achieve minimum public shareholding of 25%. At a cut off rate `742.63 per
share, the OFS stands at a 1% discount to SBI Life’s closing price of `750 apiece
on Friday.
Investors under the retail category will only be allowed to bid for shares valuing not
more than `2 lakh. SBI Life Insurance informed the bourses that no discount shall
be offered to retail investors but 10% of the shares on sale will be reserved for the
category.
Exhibit 1: Pre and Post-OFS shareholding pattern (shares in cr)
Particular
No of shares (Pre-issue)
%
No of shares (Post-issue)
%
Promoter (GOI)
62.80
63
60.70
61
Institution/Public
37.20
37
39.30
39
Total
100.0
100
100.00
100
Exhibit 2: Relative Comparision (` cr)
Embedded Value
VNBM (%)
Net Worth
PAT
Valuation (X)
Company
FY18
FY19
FY20
FY17
FY18
FY19
FY20
FY20
FY20
M.Cap
P/NW
P/EV
P/E
ICICIPru
18,788
21,620
23,032
10
17
17
22
7,213
1,068
57,571
8
2
54
HDFCLife
15,216
18,300
20,700
22
23
25
26
6,801
1,295
1,01,423
15
5
78
SBI Life
19,070
23,730
27,640
16
18
20
21
8,743
1,422
74,262
8
3
52
Source: Company
3
SBI Life Insurance| OFS Note
June 14, 2020
3
Income Statement
Particular
FY16
FY17
FY18
FY19
FY20
Policyholder Account
Total premium earned - Net
15,666
20,853
25,160
32,890
40,324
YoY Growth %
33
21
31
23
Income from investments
3,361
9,362
8,525
11,272
3,043
Transfer from shareholder a/c
93
63
76
99
476
Total income
19,119
30,278
33,761
44,261
43,843
YoY Growth %
58
12
31
(1)
Commission
714
783
1,121
1,346
1,625
YoY Growth %
10
43
20
21
Operating expenses
1,458
1,647
1,719
2,124
2,413
YoY Growth %
13
4
24
14
Provisions
175
223
353
551
678
Total expenses
2,348
2,652
3,192
4,020
4,716
YoY Growth %
13
20
26
17
Benefits paid
7,967
9,550
11,712
15,294
16,251
Change in valuation of liabilities
7,987
17,241
17,595
23,592
20,605
Total
15,954
26,791
29,307
38,886
36,856
Surplus
818
834
1,261
1,355
2,272
Tax
153
180
238
269
377
Net surplus
664
654
1,023
1,087
1,895
Transfer to shareholders account
666
655
829
999
1,463
YoY Growth %
-2
27
20
46
Shareholders account
Transfer from policyholders' a/c
666
655
829
999
1,463
Investment income
318
402
452
506
477
Other income
8
8
11
14
7
Total income
991
1,064
1,293
1,518
1,946
YoY Growth %
7
21
17
28
Expenses
24
27
33
46
56
Contribution to policyholders' a/c
93
63
76
99
476
Profit before tax
874
975
1,185
1,373
1,414
YoY Growth %
12
22
16
3
Taxes
13
20
34
46
(9)
PAT
861
955
1,150
1,327
1,422
YoY Growth %
11
20
15
7
4
SBI Life Insurance| OFS Note
June 14, 2020
4
Balance Sheet
Particular
FY16
FY17
FY18
FY19
FY20
Source
Share capital
1,000
1,000
1,000
1,000
1,000
Reserve and surplus
3,691
4,465
5,375
6,460
7,884
Net worth
4,691
5,465
6,375
7,460
8,884
Credit/debit balance in fair value a/c
42
87
153
116
(141)
Policyholders' a/c
75,991
93,673
1,11,435
1,35,140
1,53,101
Funds for future appropriation
0
-
194
282
714
Total Liabilities
80,725
99,225
1,18,156
1,42,998
1,62,558
Application
Shareholders' Investments
3,565
4,296
5,014
5,723
6,828
Policyholders' investments
38,256
46,962
54,486
64,472
73,420
Asset to cover linked liabilities
36,022
44,573
54,936
69,129
78,565
AUM
77,843
95,830
1,14,436
1,39,325
1,58,813
YoY Growth %
23
19
22
14
Loans
124
178
171
173
365
Fixed assets + DTA
447
539
581
595
581
Net current assets
2,311
2,678
2,968
2,905
2,799
Total Assets
80,725
99,225
1,18,156
1,42,998
1,62,558
YoY Growth %
23
19
21
14
5
SBI Life Insurance| OFS Note
June 14, 2020
5
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