The HDFC Life IPO amounting to Rs. 8,700 crores, comprises an offer for sale (OFS) of 191,246,050 equity shares by HDFC Life and up to 108,581,768 equity shares by Standard Life, the UK based insurer. HDFC Standard Life Insurance a dominant player in emerging insurance sector in the country, is one of the top three private life insurers in terms of profitability. After the HDFC Life IPO issue, the promoters will collectively control, approximately 81.04% of the outstanding Equity Shares. HDFC Life IPO will be third IPO from HDFC Group. HDFC Life decided to go ahead with the IPO after a merger with Max Life Insurance was rejected by the Insurance Regulatory and Development Authority of India (IRDAI) citing a violation of the Insurance Act.
HDFC Life IPO Details
|Issue Period||Tuesday, Nov 7, 2017-Thursday, Nov 9, 2017|
|Issue Size (No. of Shares)||Offer For Sale of up to 299,827,818 Equity shares|
|Issue Size ( Rs.)||Rs. 8,245 – 8,695 Cr|
|HDFC Life Employee Reservation*||2,144,520 Equity Shares|
|HDFC Ltd Employee Reservation*||805,000 Equity Shares|
|HDFC Ltd Shareholders Reservation*||29,982,781 Equity Shares|
|Price Band||Rs.275 – 290|
|Bid Lot||50 Equity Shares and multiple thereof|
|Issue Structure :|
|Total Net Offer||Up to 26,68,95,517 Equity Shares (Rs.7,340 Cr – 7,740 Cr)|
|QIB||50% of the Net offer (up to 13,34,47,758 Equity Shares ) (Rs.3,670Cr – 3,870Cr)|
|NIB||15% of the Net offer (up to 4,00,34,328 Equity Shares) (Rs.1,101 Cr – 1,161 Cr)|
|Retail||35% of the Net offer (up to 9,34,13,431 Equity Shares) (Rs.2,569~ Cr – 2,709^ Cr)|
|Appls. for 1x subscription(min. lot)- Retail||18,68,269|
|Appls. 1x subscription(min.lot)Shareholders||5,99,656|
|BRLMs||Morgan Stanley, HDFC Bank, Credit Suisse Sec, CLSA India, Nomura Financial,|
|Edelweiss Fin, Haitong Sec, IDFC Bank, IIFL Holdings, UBS Sec|
|Registrar||Karvy Computershare Pvt. Ltd.|
About HDFC Standard Life Insurance
- HDFC Standard Life Insurance was one of the first private life insurance company to register in India and was established as a joint venture between HDFC (one of India’s leading housing finance institutions) and Standard Life Aberdeen plc (one of the world’s largest investment companies).
- The promoter HDFC is a leading financial service provider in the country offering housing finance, banking, asset management,life and general insurance, venture capital etc. Standard Life is an UK based investment company offering wide range of financial services around the globe<
- HDFC Standard Life Insurance Company Ltd (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.
- HDFC Life has over 414 branches and 15,406 full-time employees located across India and 58,147 individual agents.
- In Fiscal 2012, HDFC Standard Life Insurance established a wholly-owned subsidiary, HDFC Pension, to operate it pension fund business under the National Pension System. As at March 31, 2017, HDFC Pension had approximately ₹11,629.8 million of AUM from customers enrolled under the National Pension System. HDFC Pension is the second largest private pension fund management company in India in terms of assets under management and subscribers in Fiscal 2016.
- HDFC Standard Life Insurance established its first international subsidiary in the UAE, HDFC International, to operate its reinsurance business.
|Figures in Rs. Crore|
|Profit Before Tax||570.9||908.9||833.3||804.5||642.5|
|Profit after Tax||554.1||886.9||816.7||785.5||725.3|
|Fair Value Change Account||49||32.3||-41.2||-2||2.7|
|NAV (Rs. per share)||22.3||19.1||15.6||12.7||9.7|
|EPS (Rs.per Share)||2.8||4.4||4.1||3.9||3.6|
|PE (annulaised HY17-18)||51.79|
|CAGR Revenue-Premiums 3 yrs||18.40|
|CAGR Net Profit 3 Yrs||4.45|
Objectives of the Issue
To achieve the benefits of listing the Equity Shares on the Stock Exchanges and to carry out the sale of Offered Shares by the Selling Shareholders.
Rationale for Investment:HDFC Life IPO
- HDFC Standard Life Insurance is one of the most profitable life insurers, based on Value of New Business (VNB) margin and is among the top five private life insurers in India (measured on total new business premium) in Fiscal 2016 and Fiscal 2017. Besides consistently being among the top three private life insurers in terms of profitability based on VNB margin, HDFC Standard Life Insurance 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.
- HDFC Standard Life Insurance 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 insurance, other non-participating and unit-linked insurance products. The wide product suite caters to specific needs of customers during each stage of their lives. This provides HDFC Standard Life Insurance with the flexibility to operate successfully across business cycles, work with diverse sets of distribution partners and serve a range of consumers from mass market to high net worth individuals.
- HDFC Standard Life Insurance has developed a multi-channel distribution platform over the years. It derives considerab;e strength from its Our bancassurance distribution channel which contributed 69.6%, 71.5%, 68.2% and 66.6% of its annualised premium equivalent for Fiscal 2015, Fiscal 2016, Fiscal 2017 and the six months ended September 30, 2017, respectively
- HDFC Standard Life Insurance market share among private life insurers in India in terms of total new business premium increasing from 15.8% in Fiscal 2015 to 17.2% in Fiscal 2017.
- HDFC Standard Life Insurance can count on experienced Leadership and HDFC is a Trusted brand with unmatched reputation
- HDFC Life deploys a Leading digital platform that provides a superior experience for customers and distributors.
- The company has a strong balance sheet with total net worth of Rs.4,460 crore and a solvency ratio of 200.5% as at September 30, 2017. This is well above the minimum 150% solvency ratio required under IRDAI regulations.
- The Healthcare market offers significant opportunities for insurance sector as more health insurance products launched amidst rising healthcare costs. Healthcare insurance premium have exhibited a healthy growth in last few years
Risks & Concerns: HDFC Life IPO
- The insurance regulatory and policy environment in the country continues to evolve and IRDAI from time brings out changes in regulation and compliance requirements which could have a material adverse effect on company’s business.
- Interest rate fluctuations can materially and adversely affect the profitability.
as the fixed income securities portfolio represented 58.2% of total AUM of the company.
- Aggregate foreign investment from all sources in an insurance company, is permitted up to 49% only.
- Tepid listing of recent IPOs of insurance companies may weigh on HDFC LIfe IPO as well.
Comparison with Peers:
|Figures in Rs. Billion except where (%)|
|ICICI Pru Life||HDFC Life||SBI Life||Max Life||Bajaj Allianz|
|Business performance (FY17)||New business premium (FY17)||78.6||87||101.5||36.8||32.9|
|5-year CAGR (till FY17)||9.1%||17.8%||9.20%||14%||3.90%|
|Individual-New business premium (FY17)||69.8||42||64.7||33.1||10.7|
|5-year CAGR (till FY17)||18%||7.70%||14.10%||14.10%||-10%|
|Group-New business premium (FY17)||8.9||45||36.8||3.6||22.2|
|5-year CAGR (till FY17)||-15.3||37||2.9||13||19.5|
|Individual WRP (FY17)||64.1||36.4||59.4||26.4||10.1|
|5-year CAGR (till FY17)||17.90%||6%||23%||11.90%||-5.10%|
|Renewal premiums (FY17)||Linked + non-linked||144.9||107.5||108.7||71.1||28.9|
|5-year CAGR (till FY17)||8.60%||11%||10.50%||9.60%||-9.50%|
|Total Premium (FY17)||223.5||194.6||210.2||107.8||61.8|
|5-year CAGR (till FY17)||9.80%||13.80%||9.90%||11%||-3.70%|
|Costs (FY17)||Commission ratio||3.40%||4.10%||3.70%||8.70%||2.40%|
|Persistency (FY17)||13th month(%)||85.7||80.9||81.1||80.4||68.2|
|Profitability||ROE (Average FY15-17)||31.20%||29.4||20.1||23.6||12.2|
|ROIC (Average FY15-17)||34.3||38.4||87.9||25.2||71.4|
|Market share (k) (FY17)|
|Industry level (%)||12||6.8||11.2||5||1.9|
|Private sector (%)||22.3||12.7||20.7||9.2||3.5|
|Product mix (NBP, FY17)|
|No of products||Individual (%)||19||30||29||18||23|
|Channel mix New Business Premium (Individual) (FY17)|
|Individual agents (%)||23.50%||15.50%||34.10%||25.00%||84.70%|
|Average turnaround time (Days)|
- Life premiums in the emerging markets grew 17% in 2016 versus 12% in 2015, well above the overall growth of 2.5%.
- After regulatory changes in 2011, private sector insurance companies have gained higher market share than LIC, for the first time in FY16.
- HDFC Standard Life Insurance is well positioned to tap the synergies accruing from banking operations of their parent group to reach out to customers, minimise cost and improve efficiency.
- Demographic advantage in terms of largest number of Young people in India is favorable to Life insurance companies and to HDFC Life IPO.
- HDFC Standard Life Insurance is the most profitable life insurer based on value of new business (VNB) with VNB margin at 22% in FY17.
- HDFC Standard Life Insurance enjoys a marketshare of 6.8% in Fy17 at the industry level and 12.7% among the private players.
- HDFC Standard Life Insurance also has the most balanced product mix with ULIP constituting only 35% of the total NB (New Business) basis. HDFC Standard Life Insurance has a high share of protection business (which is considered as the most profitable business segment in insurance business) at 26.4% of total NB(New Business) in H1FY18 and has focus to increase it further.
- HDFC Standard Life Insurance subsidiaries in the pension and reinsurance business are likely to help it diversify its sources of revenue and profitability in future.
- Despite recent poor show on listing by some insurance companies, HDFC LIfe IPO stands apart due to its strong parentage and trust of customers associated with the brand ‘HDFC’.
- HDFC Standard Life Insurance is positioned as a leading life insurer in one of the fastest growing economies in the world with a growing and under-penetrated life insurance market.
- Strong parentage and a trusted brand of “HDFC” enhances its appeal to consumers and investors. The group is well recognized for its focus in delivering consistent and profitable growth, customer-centric product development and sales approach and has demonstrated an ability to deliver value to its customers, shareholders and distribution partners.
- I intend to apply fully in the HDFC Life IPO both in the retail category and in the Shareholders actegory. For shareholders category in HDFC Life IPO the cut off date is date of filing of Draft Red Herring Prospectus (DRHP) which is 18th Aug 2017.
- A key event though unrelated but may impact the response to HDFC IPO is listing of Reliance Nippon Life AMC on 6/1/17 (Monday). Any erosion in current premium of Rs, 40-45 may impact response to HDFC LIfe IPO .
- While my expectations are in favor of small listing gain, this is not the reason for applying in HDFC Life IPO. I intend not to sell most of the allotted shares in HDFC Life IPO in the short run and consider it fit for a quite long haul with the understanding that return will not be phenomenal but gradual at least in the short run.
Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.