SBI LIFE INSURANCE COMPANY LIMITED September 19, 2017 SMC Ranking (3/5) Issue Highlights Industry Insurance Total Issue (Shares) - Offer for sale 120,000,000 Net Offer to the Public 120,000,000 Issue Size (Rs. Cr.) 8220-8400 Price Band (Rs.) 685-700 Offer Date 20-Sep-17 Close Date 22-Sep-17 Face Value 10 Lot Size 21 Equity Share About the Company Incorporated in 2000, SBI Life Insurance Company Limited is India based private life insurer. SBI Life Insurance is a joint venture between the State Bank and BNP Paribas Cardif. SBI owns 70.1% of the life insurer. BNP Paribas owns a 26% stake with KKR and Temasek holding the rest. BNPPC, an insurance subsidiary of BNP Paribas, with operations across 36 jurisdictions internationally, is among the leading credit life insurance businesses globally. BNP Paribas is in top 10 global financial institutions in terms of revenue. As of July 31, 2017, the company had a comprehensive product portfolio of 37 individual and group products (of which eight products are group products), including a range of protection and savings products to address the insurance needs of diverse customer segments. Strength Issue Composition Total Issue for Sale 120,000,000 QIB 53,000,000 NIB 15,900,000 Retail 37,100,000 Shareholding Pattern (%) Objects of the Issue Book Running Lead Manager Axis Capital Limited BNP Paribas Citigroup Global Markets India Private Limited Deutsche Equities India Pvt Ltd. ICICI Securities Limited JM Financial Consultants Pvt Ltd Kotak Mahindra Capital Company Limited SBI Capital Markets Limited Name of the registrar In shares Particulars Pre-issue Post -issue Promoters & promoters group 96.10% 84.10% QIB 3.90% 9.20% NIB 0.00% 1.59% Employee reservation 0.20% Shareholder's reservation 1.20% Retail 0.00% 3.71% Total 100.00% 100.00% *calculated on the upper price band To achieve the benefits of listing Equity Shares on the Stock Exchanges and to carry out the sale of up to 120000000 Equity Shares by the Selling Shareholders. Karvy Computer share Pvt Ltd One of the largest private life insurer with a consistent track record of rapid growth: The company has increased its market share of New Business Premium generated among private life insurers in India, from 15.87% in Fiscal 2015 to 20.04% in Fiscal 2017, and market share of New Business Premium in the entire life insurance industry, from 4.89% in Fiscal 2015 to 5.80% in Fiscal 2017 (Source: CRISIL Report). The number of policies issued by the company has increased at a CAGR of 6.42% from 1126211 in Fiscal 2015 to 1275550 in Fiscal 2017. Significant brand equity and pre-eminent Promoters: The Company is recognized as among the Most Trusted Brands by The Economic Times Brand Equity Nielsen survey in Fiscal 2017 for the sixth consecutive year. The company has benefitted significantly from the established brand equity of State Bank of India and its affiliates. As of March 31, 2017, State Bank of India was India s largest commercial bank in terms of deposits, advances and number of branches. Following its recent merger with certain of its associate banks and a non-affiliate bank, with effect from April 1, 2017, State Bank of India had 24017 branches, 195 international offices in 36 countries and more than 420 million customers. The company believes that it gets benefit from the brand and market reputation of BNPPC, the insurance subsidiary of BNP Paribas with operations across 36 jurisdictions. Expansive multi-channel distribution with pan-india bancassurance channel and high agent productivity: The company has a large and productive individual agent network comprising 95177 agents as of July 31, 2017 and its individual agent network generated 22.88% of the Individual New Business Premium generated by private life insurers in Fiscal 2017 (Source: CRISIL Report). The company has reported a growth of 38.42% in Individual New Business Premium generated through its bancassurance channel from Fiscal 2016 to Fiscal 2017. Individual New Business Premium contributed by its bancassurance channel was 799 Cr for the three months ended June 30, 2017 and increased at a CAGR of 46.72% from 1944.27 Cr. in Fiscal 2015 to 4185.30 Cr in Fiscal 2017, compared to a CAGR of 27.20% for private life insurers in India during the same period (Source: CRISIL Report). Robust financial position supported by high operating efficiencies: The company has turned profitable within the first five years of its operations, have demonstrated consistent profitability since Fiscal 2010 and have declared dividends every year since Fiscal 2012. It has maintained its Solvency Ratio at over 2.00 during the last five fiscal years, and its Solvency Ratio was 2.11 as of June 30, 2017, compared to the IRDAI mandated Solvency Ratio of 1.50. Its New Business Premium, Gross Written Premium and New Business 1
Annualized Premium Equivalent increased at a CAGR of 35.45%, 27.80% and 36.59%, respectively, between Fiscal 2015 and Fiscal 2017, while its Individual Rated Premium increased at a CAGR of 37.90% in the same period. Superior investment performance: As of March 31, 2015, 2016 and 2017, and June 30, 2017, its AUM was 71338.93 C., 79827.57 Cr, 97736.60 Cr. and 101226 Cr. respectively. As of June 30, 2017, most of its unit-linked funds that are benchmarked to independent indices have out-performed the benchmark over the last 5 year, 3 year and 1 year horizons. The average realized returns for its traditional portfolio in Fiscal 2017 was 9.00%. Diversified product portfolio: The company believes that its diversified product portfolio is an important contributing factor to the growth of its business. In Fiscal 2017, participating products, nonparticipating protection products, other non-participating products and unit-linked products contributed 1092.37 Cr., 96 Cr., 171.79 Cr. and 5107.96 Cr., respectively, representing 16.89%, 1.48%, 2.66% and 78.97%, respectively, of its Individual New Business Premium in such period. Effective risk management: The Company believes that its robust risk management practices have been an important contributing factor to its sustainable growth. The company claims of being the first insurance company in India to have complied with the recommendations of ISO 31000 2009 for enterprise risk management practices and systems and all its processing centres are ISO 9001:2008 certified. Its widespread operations across metropolitan cities, tier I, tier II and tier III cities, as well as semi urban and rural parts of India reduce any geographic concentration risk as well as dependence on any particular customer segment. Strong focus on customer service standards: The company s strong focus on customer service is a key factor for its sustained growth. It offers a diverse and comprehensive range of products that cover various customer segments. As of July 31, 2017, it had 803 offices located across 29 States and seven Union Territories to serve its customers. In addition, as of July 31, 2017 it provides customer support services through over 42,000 of its CIFs at the branches of its various bancassurance partners. The company also provides customer support through its call centres, website and mobile application, SBI Life Easy Access. The Death Claims Settlement Ratio of the company has improved from 92.33% in Fiscal 2015 to 97.98% in Fiscal 2017 and was 89.61% for the three months ended June 30, 2017. The Surrender Ratio for individual unit-linked products to average AUM was 8.82% and 8.99% in Fiscal 2017 and for the three months ended June 30, 2017, respectively. Business Strategies Capitalize on insurance industry growth opportunities: Indicators such as life insurance penetration (premium as a percentage of GDP), insurance density (premium per capita) and protection gap (sum assured to GDP) indicate that India is still underinsured and there is significant scope for growth. With a gradual growth of the economy, and structural drivers in place (rising life expectancy, increase in share of working population, healthcare spending, pension needs), the growth trajectory of life insurance products is expected to be markedly stronger over the next five years. The company believes that it is in well positioned to capitalize on opportunities arising out of the growing life insurance market in India. For the same the company proposes to expand its branch network, develop and introduce additional individual products to add to its product portfolio of 29 individual products as of July 31, 2017. Ensure profitable growth through balanced product portfolio and expansive distribution network: The Company will continue to focus on ensuring profitability of its business by maintaining a diversified product portfolio. The company continues to undertake market assessment studies to strategically evaluate additional product offerings. As part of its efforts to enhance its Value of New Business, Embedded Value and improve margins, its strategy is to further optimize its product portfolio by maintaining a balance between unit-linked, participating and non-participating products. The company intends to continue to leverage its strong multi-channel distribution network to ensure profitable growth. 2
Enhance brand equity and continue to focus on customer satisfaction: The Company claims that it continues to build on its existing corporate culture and strengthen its image as a socially responsible insurance company through various corporate social responsibility and insurance awareness initiatives with the intent to pursue sustainable, value-enhancing long-term growth and profitability. The company has said that it would continue to cultivate a strong customer service ethos across all its customer interfaces, across its distribution channels and customer support services including its call centres. Further, it would continue to streamline and automate its customer interfaces through its website and digital platforms to make them user-friendly and allow for improved ease of access. Leverage technology to improve operating efficiencies and support growth: The Company intends to continuously upgrade its IT infrastructure to reduce operating costs across its business processes including sourcing, claims management and claims settlement. It has made significant investments in its IT systems and infrastructure, including innovative additions such as the SBI Life Easy Access mobile application that provides product and policy related information to customers, and Connect Life, which allows sales personnel to select products, complete the application, pay the requisite premium and upload relevant documents from a tablet. Risk factor Investment portfolio is subject to liquidity risk: As of June 30, 2017, its AUM was 1 0122.60 Cr and equities, government securities and corporate bonds represented 23.02%, 46.44% and 21.92%, respectively, of its AUM as of such date. If there is an increase in interest rates or a change in the prevailing market yields on its investments, or an unfavourable change in the liquidity of an investment, it could adversely affect the value of its investments, as well as the value of its unit-linked products. Operate in a regulated industry: The Company is subject to various insurance laws and regulations. Any change in regulations or any regulatory action against it, agents and other intermediaries could have an adverse effect on its business, prospects, financial condition and results of operations. Any increase in or realization of its contingent liabilities: As of June 30, 2017, its aggregate contingent liabilities, in accordance with the provisions of Accounting Standard 29 Provisions, Contingent Liabilities and Contingent Assets, were 416.61 Cr. Reliance on independent contractors and service providers for various services: The Company relies on independent contractors and service providers for its various services. The company gives no assurance that such contractors and service providers will comply with relevant regulatory requirements or their contractual obligations. Peer comparison Co_Name Total Operating PAT EPS P/E P/BV BV FV Price Mcap Income ICICI Prudential 37871.43 1681.66 10.93 39.45 10.11 42.64 10 431.30 61910.01 SBI Life 1056.15 954.65 9.55 73.33 11.91 58.79 10 700.00 70000.00 *SBI Life Insurance Company Limited ratios (expected) post issue Valuation Considering the valuation at upper price band of Rs. 700, EPS and P/E of FY2017 are Rs. 9.55 and 73.33 multiple respectively and at a lower price band of Rs. 685, P/E multiple is 71.75; at upper price band of Rs. 685, book value and P/B of FY2017 are Rs. 58.79 and 11.91 multiple respectively and at a lower price band of Rs. 685, P/B multiple is 11.65. No change in pre and post issue EPS and Book Value as the company is not making fresh issue of capital. 3
Industry Outlook The size of the Indian life insurance industry is 4.2 trillion on a total-premium basis as of fiscal 2017. In terms of total premium, the Indian life insurance industry is the 10th largest market in the world and the fifth largest in Asia based on Swiss Re, sigma No 3/2017 report. New premium constituted 42% of the total premium as of fiscal 2017. The industry s assets under management (AUM) grew at a compound annual rate (CAGR) of 19% during fiscal 2001 to fiscal 2017 to 30 trillion. Total premium has grown at a stupendous 17% CAGR during fiscal 2001 to fiscal 2017, after the privatisation in 2000. With India expected to be the fastest-growing Asian economy GDP increasing at 10% CAGR in the next five years (in dollars, current prices), according to IMF forecasts (published in April 2016) the Indian life insurance industry seems poised for strong growth in the years to come. Outlook SBI Life has seen robust growth in premium income during the past financial year and has declared dividends every year since Fiscal 2012. It has also increased its market share of New Business Premium generated among private life insurers in India, from 15.87% in Fiscal 2015 to 20.04% in Fiscal 2017. As of July 31, 2017, SBI Life had a comprehensive product portfolio of 37 individual and group products (of which eight products are group products), including a range of protection and savings products to address the insurance needs of diverse customer segments. Considering all these aspects, it is expected that company would see good growth going forward. However the issue looks expensive. A long term investor may opt the issue. An Indicative timetable in respect of the Issue is set out below: EVENT INDICATIVE DATE (On or about) Issue Closing Date September 22, 2017 Finalisation of Basis of Allotment with the Designated Stock September 27, 2017 Exchange Initiation of refunds (if any, for Anchor Investors)/unblocking of September 28, 2017 funds from ASBA Account Credit of Equity Shares to demat accounts fo Allottees September 29, 2017 Commencement of trading of the Equity Shares on the Stock October 3, 2017 Exchanges 4
Annexure Consolidated Financials Profit & Loss Rs. in Cr. Particulars Period ended Period ended Period ended 30-Jun-17 31-Mar-17 31-Mar-16 Amounts transferred from Policyholders' 218.03 654.59 651.72 account (Technical account) Other operating income 106.95 401.56 317.79 Total expenditure 6.25 89.80 122.34 Operating Profit 318.73 966.36 847.18 OPM% 146.19 147.63 129.99 Other Income 3.48 8.21 7.93 PBDIT 322.21 974.57 855.11 Tax 8.76 19.92 11.00 PAT 313.45 954.65 844.10 Balance sheet is on next page 5
Balance Sheet Rs. in Cr. Particulars As on 30-Jun-17 As on 31-Mar-17 As on 31-Mar-16 Policy holders fund Policy liabilities 50304.88 49100.13 39969.57 Provision for linked liabilities 46,149.41 44,542.81 36,008.38 Others 35.91 30.23 13.27 Policy liabilities 96490.21 93673.17 75991.23 Funds for future appropriation Linked 0.00 0.00 0.23 Non linked 41.50 0.00 0.00 41.50 0.00 0.23 96531.71 93673.17 75991.46 Investments Shareholders 5240.76 4295.51 3564.90 Policyholders 48017.85 46961.75 38255.90 Investments 53258.61 51257.25 41820.80 Assets held to cover linked liabilities 46185.32 44573.03 36021.89 Loans 177.48 178.20 123.56 Fixed Assets 558.36 538.48 447.25 Deferred tax assets 0.00 0.00 0.00 Total of others 46921.17 45289.71 36592.70 Current Assets Cash and Bank Balance 1884.81 2429.84 2616.76 Advances and other assets 2904.65 3262.77 2398.81 Total Current Assets 4789.46 5692.61 5015.57 Current liabilities Other current liabilities 2331.32 2764.07 2502.59 Provisions 227.42 250.25 201.92 Total current liabilities 2558.73 3014.32 2704.51 Net Current Assets 2230.73 2678.29 2311.06 Total 102410.50 99225.25 80724.56 NET Worth 5878.80 5552.08 4733.10 Net worth represented by: Share capital 1000.00 1000.00 1000.00 Share application money 0.00 0.00 0.00 Reserve and surplus 4778.23 4464.78 3690.67 Credit/Debit fair Value change account 100.57 87.30 42.44 Net Worth 5878.80 5552.08 4733.10 6
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