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    HDFC Standard Life IPO opens today: Here's what you need to know

    Synopsis

    The IPO portion set aside for anchor investors is worth Rs 2,322 crore, the largest ever.

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

    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 will be sold in the Rs 275-290 price band. The minimum bid lot is fixed at 50 shares and in multiples of it thereafter.

    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 says 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 SBI Life and 5 per cent for ICICI Prudential Life in FY17

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

    HDFC Standard Life 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 stake while the remaining 2.58 per cent is held by other shareholders.

    At present, it is the third-largest private sector life insurer in India with 16.5 per cent share of total private sector premiums in FY2017.

    Motilal Oswal Securities said even though valuations look high compared with its listed peers , the premium valuation for the issue is justified given huge the potential for growth as insurance is highly underpenetrated in India, while strong financial performance, focus on customer centricity enabling growth across business cycles, consistently growing multi-channel distribution footprint and strong return on equity (RoE) are other positives.

    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.

    Jaikishan J Parmar of Angel Broking 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.



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    (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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