HDFC Standard Life IPO review (May apply)

Review By Dilip Davda on Oct 30, 2017

HDFC Standard Life Insurance Co. Ltd. (HDFC Life), a joint venture between HDFC Ltd and Standard Life (Mauritius Holdings), is one of the most profitable life insurers, based on Value of New Business (VNB) margin, among the top five private life insurers in India (measured on total new business premium) in Fiscal 2016 and Fiscal 2017, according to CRISIL. Besides consistently being among the top three private life insurers in terms of profitability based on VNB margin, it has also consistently been among the top three private life insurers in terms of market share based on total new business premium between Fiscal 2015 and Fiscal 2017, according to CRISIL. Its total new business premium for Fiscal 2015, Fiscal 2016, Fiscal 2017 and the six months ended September 30, 2017, was Rs. 5492.10 crore, Rs. 6487.22 crore, Rs. 8696.36 crore and Rs. 4402.90 crore respectively. In Fiscal 2012, The Company established a wholly-owned subsidiary, HDFC Pension, to operate its pension fund business under the National Pension System (NPS). And in Fiscal 2016, the Company established its first international wholly-owned subsidiary in the UAE, HDFC International, to operate its reinsurance business. IPO from HDFC group is coming after a gap of 22 years.

HDFC Life has a broad, diversified product portfolio covering five principal segments across the individual and group categories, namely participating, non-participating protection term, non-participating protection health, other nonparticipating and unit-linked insurance products. As at September 30, 2017, its product portfolio comprised 32 individual and ten group products, as well as eight optional rider benefits. Company’s prime focuses it to be in highly profitable business model despite stiff competition and to be in top five ranks. For this, it is keeping ULIP products sale under 50% and from the rest, it does conventional product, tailor made products and specialized products. The Company has a pan-India presence, comprising 414 branches and spokes across India as at September 30, 2017, supported by a dedicated workforce of 16,544 full-time employees. The Company’s bancassurance partners include banks, non-banking financial companies, micro-finance institutions and small finance banks in India. The number of major bancassurance partners grew from 31 as at March 31, 2015 to 125 as at September 30, 2017. The top 15 bancassurance partners (in terms of total new business premium sourced for the period ended September 30, 2017) had over 11,200 branches across India as at September 30, 2017.

For listing purpose, HDFC Life is coming out with a maiden IPO by offer for sale of 299827818 equity share of Rs. 10 each via book building route with a price band of Rs. 275 – Rs. 290 per share to mobilize Rs. 8245.26 crore to Rs. 8695.01 crore (based on lower and upper price bands). Issue opens for subscription on 07.11.17 and will close on 09.11.17. Minimum application is to be made for 50 shares and in multiples thereon, thereafter. Out of the total issue, company has reserved 2144520 shares for HDFC Life eligible employees, 805000 shares for HDFC eligible employees and 29982781 shares for shareholders of HDFC Ltd. From the balance, it has kept 50% for QIBs, 15% for HNIs and 35% for retail investors. Post allotment shares will be listed on BSE and NSE. BRLMs to the offer are Morgan Stanley India Co. Pvt. Ltd., HDFC Bank Ltd., Credit Suisse Securities (India) Pvt. Ltd., CLSA India Pvt. Ltd., Nomura Financial Advisory ans Securities (India) Pvt. Ltd., Edelweiss Financial Services Ltd., Haitong Securities (India) Pvt. Ltd., IDFC Bank Ltd., IIFL Holdings Ltd. and UBS Securities India Pvt. Ltd. Karvy Computershare India Pvt. Ltd.is the registrar to the issue. Issue constitutes 14.92% of post issue paid up capital of the company which remains same at Rs. 2008.97 crore. Since inception in August 2000 till March 2010 it issued equity shares at par. Thereafter it raised further equity in the price range of Rs.26 to Rs. 190 per share from June 2010 to October 2017. Cost of acquisition of shares by HDFC Ltd. is Rs. 10.71 and Standard Life is Rs. 41.79 per share. Following the IPO, HDFC’s stake will come down to 51.69 per cent and Standard Life’s shareholding will reduce to 29.35 per cent.

On performance front (on a consolidated basis) company has reported total income of Rs. 881.47 cr. / Rs. 725.31 cr. (FY14), Rs. 874.17 cr. / Rs. 785.51 cr. (FY15), Rs. 900.03 cr. / Rs. 816.79 cr. (FY16) and Rs. 1016.72 cr. / Rs. 886.92 cr. (FY17). For first half of current fiscal, it has posted net profit of Rs.554.14 crore on a total income of Rs.592.21 cr. For last three fiscals it has posted average EPS of Rs. 4.02 and average RoNW of 28.3%. If we annualized latest earnings and attribute it on fully diluted post issue equity then asking price is at a P/E of 52 plus. (Based on average EPS P/E is 72.13, on EPS of FY17 P/E is 65.91%). Peers are trading at a P/E ranging from 33 to 69 (average 51.4%). Based on NAV of Rs. 19.1 as on 31.3.17, issue is priced at a P/BV of 15 plus. Thus even though it is priced below Rs. 300 level compared to earlier two life insurance sector IPOs, this issue appears aggressively priced discounting future earnings.

On BRLM’s front, ten merchant bankers associated with the offer have handled 42 public issues in the past three fiscals out of which 10 public issues closed below the issue price on listing date.

Conclusion: Based on faring of recent IPOs in life insurance sector, cash surplus risk savvy investors may consider moderate investment for medium to long term in this HDFC group IPO coming after 22 years. (High Risk – Low Return).


Conclusion / Investment Strategy

Based on faring of recent IPOs in life insurance sector, cash surplus risk savvy investors may consider moderate investment for medium to long term in this HDFC group IPO coming after 22 years. (High Risk – Low Return).

Review By Dilip Davda on Oct 30, 2017

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

HDFC Life IPO FAQs

  1. 1. Why HDFC Life IPO?

    The initial public offer (IPO) of HDFC Standard Life Insurance Company Ltd offers an early investment opportunity in HDFC Standard Life Insurance Company Ltd. A stock market investor can buy HDFC Life IPO shares by applying in IPO before HDFC Standard Life Insurance Company Ltd shares get listed at the stock exchanges. An investor could invest in HDFC Life IPO for short term listing gain or a long term.

  2. 2. How is HDFC Life IPO?

    Read the HDFC Life IPO recommendations by the leading analyst and leading stock brokers.

    • Centrum Wealth Management - Apply
    • Choice Equity Broking Pvt Ltd - Apply
    • Dilip Davda - May apply
    • Geojit Securities Ltd - Apply
    • Hem Securities - Apply
    • SMC Global - Apply
    • SPA Financial Advisor Ltd - Apply
    • Way2Wealth Securities - Apply
  3. 3. HDFC Life IPO what should investors do?

    HDFC Life IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the HDFC Life IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  4. 4. Is HDFC Life IPO good?

    Our recommendation for HDFC Life IPO is to subscribe for long term.

  5. 5. Is HDFC Life IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the HDFC Life IPO.

  6. 6. When will HDFC Life IPO allotment status?

    The HDFC Life IPO allotment status will be available on or around Nov 14, 2017. The allotted shares will be credited in demat account by Nov 16, 2017. Visit HDFC Life IPO allotment status to check.

  7. 7. When will HDFC Life IPO list?

    The HDFC Life IPO will list on Friday, November 17, 2017, at BSE, NSE.








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