SBI Life Insurance Company Ltd.

IPO Note: SBI Life Insurance Company Ltd. Industry: Life Insurance Recommendation: Subscribe Date: September 19, 2017 Issue Snapshot Company Name SBI Life Insurance Company Ltd. Issue Opens September 20, 2017 to September 22, 2017 Price Band Rs. 685 to Rs. 700 Bid Lot The Offer Issue Size IPO Process Face Value Rs. 10.00 Exchanges BRLM Registrar 21Equity Shares and in multiples thereof. Public issue of 120,000,000* Equity shares of Face value Rs.10 each, (Comprising of Offer for Sale by Selling Shareholder (SBI Bank: 80,000,000 Equity Shares and BNP Paribas Cardif S.A.: 40,000,000 Equity Shares). Rs. 8220.0 8400.0 Crore 100% Book Building NSE & BSE JM Financial Institutional Securities Limited, Axis Capital Limited, BNP Paribas, Citigroup Global Markets India Private Limited, Deutsche Equities India Private Limited, ICICI Securities Limited, Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited Karvy Computershare Private Limited Objects of the Offer Offer for Sale The Company will not receive any proceeds of the Offer for Sale by the Selling Shareholder. The objects of the Offer are to achieve the benefits of listing the Equity Shares of the Company on the Stock Exchanges. The listing of Equity Shares will enhance the SBI Life brand name and provide liquidity to the existing Shareholders. Issue Break up Issue Size Allocation Equity Shares* QIB 50% 53,000,000 HNI 15% 15,900,000 RII 35% 37,100,000 Total Public 100% 106,000,000 Employee Reservation 2,000,000 SBI Shareholders 12,000,000 Total 120,000,000 * Based on Higher Price Band @ 700 Company Highlights SBI Life Insurance Co. Ltd. (SBI Life) is India s largest private life insurer, in terms of New Business Premium generated in each fiscal year, since Fiscal 2010. 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. Between Fiscal 2015 and Fiscal 2017, SBI Life s New Business Premium generated increased at a CAGR of 35.45%, which is the highest among the top five private life insurers (in terms of total premium in Fiscal 2017) in India. In Fiscal 2017, the company enjoyed a market share of Individual Rated Premium of 20.69% among private life insurers in India and 11.16% of the entire life insurance industry in India. Between Fiscal 2015 and Fiscal 2017, its Individual Rated Premium increased at a CAGR of 37.90 %, the highest among the top five private life insurers and has also issued the highest number of individual life policies annually among the top five private life insurers in India since Fiscal 2014. Based on the Embedded Value Report issued by the Independent Actuary, Embedded Value was Rs. 165,379 million as of March 31, 2017. Value of New Business was Rs. 10,368 million in Fiscal 2017 while Value of New Business Margin was 15.4% and Present Value of New Business Premium Margin was 3.8% for Fiscal 2017. 1

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. View SBI Life is India s largest private life insurer, in terms of new business premium generated in each fiscal year, since FY10 and holds the highest market share (within private players) of 20.04% as of FY17 based on new business premium. Among top five largest private sector life insurers, SBI Life holds second highest market share of 17.82% based on total premium as of FY17. The company has been able to increase its market share of new business premium from 15.87% in FY15 to 20.04% in FY17 on account of sheer growth in new business premium at a CAGR of 35.45% between this period, highest among the top five private players. While the five year CAGR in new business premium is at 9.22%, significantly lower than HDFC Standard Life (17.81% CAGR) and Max Life (13.96% CAGR), suggesting that it has upped its game in the last three years. SBI Life s Assets under Management (AUM) have increased from Rs 713,389.30 million as of FY15 to Rs 977,366.03 million as of FY17, and stood at Rs 1,012,260.34 million as of June 30, 2017. Between FY15 and FY17, AUM grew at a CAGR of 17.1% achieving second highest growth among top five private players. SBI Life has a balanced composure towards new business premium with Individual policies contributing 63.77% while group polices contributing the rest and thus the growth in new business premium was led by individual new business premium. For FY17, participating products, non-participating protection products, other non-participating products and unit-linked products contributed 16.89%, 1.48%, 2.66% and 78.97%, respectively of individual new business premium. Although, there has been high reliance on unit-linked products, however, this is lower than share of 84% for ICICI Prudential. According to the management, the high share of unit-linked products is on account to get high-networth individuals as customers and the share is unlikely to go higher. Value of new business margin is significantly higher for SBI Life at 15.4% compared to 10.1% for ICICI Prudential, as of FY17. SBI Life also stands tall on other operating metrics like persistency ratio, which is one of the best in the industry at 81.07% (13th month) while surrender ratio is also one of the lowest at 22.79%. The life insurer also has the highest three year CAGR in renewal premium at 24.21% as against 18.68% for ICICI Prudential and 10.24% for HDFC Standard life. Majority of the policies are towards regular premium than single premium. Operating Expense ratio (excluding commission) is the lowest in the industry at 7.83% while commission ratio is third lowest among top five private life insurers at 3.73%. Nevertheless, the total cost ratio is the lowest among top five private players at 11.56% compared to 13.94% for ICICI Prudential Life and 16.37% of HDFC Standard Life. Death Claim Settlement Ratio for SBI Life is at par with peers at 98% compared to 97.2% for ICICI Prudential and 99.2% for HDFC Standard Life, as of FY17. Solvency ratio as of FY17, also stands strong at 2.04 times for SBI Life as against 1.92 times for HDFC Standard Life and 2.81 times for ICICI Prudential Life. SBI Life also has access to the largest branch network in the country due to its promoter, besides having a strong agency network comprising 95,177 agents as of July 31, 2017. For the June quarter, bancassurance contributed 63.54% of new business premium while the rest was through agency. Bancassurance distribution benefits from cost efficiencies and the wellregulated nature of SBI Life s bancassurance partners. Apart from SBI as a bancassurance partner, SBI Life also intends to garner strong relation with newer bancassurance partners Punjab and Sind Bank (with 1,500 branches as of March 31, 2017, primarily in north India) and with South Indian Bank (with 850 branches as of March 31, 2017, primarily in south India). As of FY17, return on embedded value net of tax (ROEV) for SBI Life stands higher at 23% compared to 16.5% for ICICI Prudential. At the higher price band, the issue is valued at 4.2x FY17 embedded value, which is at premium when considered with 3.8x FY17 embedded value for ICICI Prudential. However, considering lower operating expense ratio, strong persistency ratio and low surrender ratio together with higher than industry new business premium growth (FY15-FY17), the premium valuations are justified. SBI Life has been gaining market share leveraging its strong bancassurance channel. Considering low insurance penetration in India and improvement in share of financial savings in household savings, together with strong operational metrics for SBI Life, we recommend to SUBSCRIBE the issue from long term investment perspective. 2

Consolidated Financial Statement (In Rs. Cr.) FY13 FY14 FY15 FY16 FY17 Q1FY18 Statement of Assets and Liabilities Shareholders' Funds Share Capital 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 Reserves and Surplus 1,709.4 2,320.1 2,991.0 3,690.7 4,464.8 4,778.2 Credit/(Debit) Fair Value Change Account 27.1 36.2 65.3 42.4 87.3 100.6 Sub-total 2,736.4 3,356.3 4,056.3 4,733.1 5,552.1 5,878.8 Policyholders' Funds Credit/(Debit) Fair Value Change Account 82.9 261.9 500.8 335.4 776.4 808.6 Policy Liabilities 22,936.1 26,795.0 32,860.4 39,634.2 48,323.8 49,496.3 Provision for Linked Liabilities 26,526.0 28,589.9 34,808.6 36,021.7 44,573.0 46,185.3 Sub-total 49,549.0 55,649.4 68,172.9 75,991.2 93,673.2 96,490.2 Total Sources of Funds 52,308.7 59,017.6 72,236.6 80,724.6 99,225.2 102,410.5 Investments - Shareholders' 1,811.6 2,353.5 3,070.2 3,564.9 4,295.5 5,240.8 - Policyholders' 21,687.9 25,323.9 31,504.5 38,255.9 46,961.7 48,017.8 Assets held to cover Linked Liabilities 26,547.9 28,597.3 34,810.1 36,021.9 44,573.0 46,185.3 Loans 0.2 0.6 1.8 123.6 178.2 177.5 Fixed assets 285.5 308.2 298.4 447.2 538.5 558.4 Current Assets 3,381.4 4,056.9 4,435.5 5,015.6 5,692.6 4,789.5 Current Liabilities 1,405.7 1,622.7 1,883.9 2,704.5 3,014.3 2,558.7 Net Current Assets 1,975.7 2,434.2 2,551.6 2,311.1 2,678.3 2,230.7 Total Application of Funds 52,308.7 59,017.6 72,236.6 80,724.6 99,225.2 102,410.5 Revenue Account (Policyholders Account/Technical Account) Premiums earned - Net 10,345.3 10,701.9 12,780.0 15,665.5 20,852.5 3,762.6 Income from Investments 4,374.0 6,354.0 10,242.9 3,340.9 9,295.0 2,607.0 Contribution from the Shareholders' A/c 244.3 301.1 149.7 93.7 62.7 - Other Income 12.0 12.4 13.9 19.7 67.4 18.8 Total (A) 14,975.5 17,369.4 23,186.5 19,119.7 30,277.5 6,388.4 Commission 510.0 557.6 603.7 714.3 783.3 165.1 Operating expenses (Insurance Business) 1,000.2 1,089.4 1,167.5 1,480.9 1,646.5 371.8 Provision for Tax 59.9 88.4 109.8 151.9 179.8 121.5 Provisions (other than taxation) 15.5-1.9-10.7 5.1-4.3 1.2 Service Tax on charges 134.7 119.3 129.0 170.2 226.6 56.3 Total (B) 1,720.1 1,852.9 1,999.4 2,522.3 2,832.0 716.1 Benefits paid (Net) 7,778.8 8,780.2 8,197.7 7,958.6 9,526.1 2,622.5 Interim & terminal bonuses paid 0.7 1.5 2.7 7.4 24.1 5.5 Change in valuation of liability 4,741.1 5,922.8 12,284.1 7,986.9 17,241.0 2,784.8 Total (C) 12,520.6 14,704.5 20,484.4 15,952.8 26,791.2 5,412.8 Surplus/ (Deficit) (D) = (A) - (B) - (C) 734.8 812.0 702.7 644.6 654.4 259.5 Source: RHP 3

(In Rs. Cr.) FY13 FY14 FY15 FY16 FY17 Q1FY18 Profit And Loss Account (Shareholders Account/Non-technical Account) Transfer from Policyholders' account 741.1 823.3 707.3 651.7 654.6 218.0 Income from Investments 150.5 202.2 276.1 317.8 401.6 107.0 Other Income 6.6 7.4 7.5 7.9 8.2 3.5 Total (A) 898.1 1,032.9 990.8 977.4 1,064.4 328.5 Expenses (apart from insurance) 21.7 5.1 12.9 28.3 27.5 6.3 Contribution to the Policyholders' A/c 244.3 301.1 149.7 93.7 62.7 0.0 Provisions (Other than taxation) 2.1-1.0-1.1 0.4-0.4 0.0 Total (B) 268.0 305.1 161.5 122.3 89.8 6.3 Profit / (Loss) Before Tax 630.1 727.8 829.3 855.1 974.6 322.2 Provision for Taxation 0.0 0.0 14.5 11.0 19.9 8.8 Profit / (Loss) After Tax 630.1 727.8 814.9 844.1 954.7 313.4 Diluted EPS (Rs.) 6.30 7.28 8.15 8.44 9.55 3.13 Receipts and Payments Account Cash flow from Operations Activities 1130.0 166.4 2711.5 5777.9 8525.1 759.2 Cash flow from Investing Activities -226.8-708.4-178.2-7203.7-9031.2 68.9 Cash flow from Financing Activities -58.1-58.1-117.0-144.0-144.4-180.5 Net increase/(decrease) in cash and cash equivalents 845.1-600.1 2416.3-1569.8-651.1 647.6 Cash and cash equivalents at the beginning of the year 2716.6 3561.7 2961.6 5377.8 3808.0 3157.0 Cash and cash equivalents at the end of the year 3561.7 2961.6 5377.8 3808.0 3157.0 3804.5 Statement of Premium Income First year premiums 2,617.6 2,999.5 3,330.7 4,630.5 6,207.2 1,171.8 Renewal premiums 5,230.9 5,716.0 7,338.0 8,718.8 10,871.3 1,988.0 Single premiums 2,564.7 2,068.0 2,198.4 2,476.0 3,936.6 628.2 Total Premium 10,413.2 10,783.4 12,867.1 15,825.4 21,015.1 3,788.1 Key Performance Indicators Solvency Ratio 2.2 2.2 2.2 2.1 2.0 2.1 Return on Net worth 25.7% 23.9% 22.0% 19.2% 18.6% 5.5% Net Asset Value Per share (Rs.) 27.4 33.6 40.6 47.3 55.5 58.8 Persistency Ratio 13th Month 64.5% 67.1% 69.9% 67.4% 68.8% 69.3% 25th Month 59.6% 52.8% 57.9% 61.1% 58.0% 59.7% 37th Month 32.0% 42.3% 47.3% 51.8% 55.5% 54.4% 49th Month 17.4% 25.7% 36.5% 42.5% 39.5% 45.4% 61st Month 17.9% 16.9% 20.7% 27.4% 37.2% 37.2% Source: RHP Comparison with listed industry peers Name of the company EPS (Rs.) NAV (Rs.) P/E (x) RoNW (%) Market Cap (Rs. Cr.) SBI Life 9.6 58.8 72.9 18.6 70,000.0 ICICI Pru 11.7 44.6 38.1 28.7 60,840.6 Source: RHP, Ashika Research Note: SBI Life fig. are calculated based on post issue diluted and higher price band. All Fig. are of FY17 4

Research Team Name Designation Email ID Contact No. Paras Bothra President Equity Research paras@ashikagroup.com +91 22 6611 1704 Sanjeev Jain AVP Equity Research sanjeev.j@ashikagroup.com +91 33 4036 0650 Krishna Kumar Agarwal Equity Research Analyst krishna.a@ashikagroup.com +91 33 4036 0646 Partha Mazumder Equity Research Analyst partha.m@ashikagroup.com +91 33 4036 0647 Arijit Malakar Equity Research Analyst amalakar@ashikagroup.com +91 33 4036 0644 Kapil Jagasia Equity Research Analyst kapil.j@ashikagroup.com +91 22 6611 1715 Tirthankar Das Technical & Derivative Analyst tirthankar.d@ashikagroup.com +91 33 4036 0645 ( ASBL ) or Research Entity has started its journey in the year 1994 and is engaged in the business of broking services, depository services, distributor of financial products (Mutual fund, IPO & Bonds). This research report has been prepared and distributed by ASBL in the sole capacity of a Research Analyst (Reg No. INH000000206) of SEBI (Research Analyst) Regulations 2014. ASBL is a wholly owned subsidiary of Ashika Global Securities (P) Ltd., a RBI registered non-deposit taking NBFC Company. Ashika group (details is enumerated on our website www.ashikagroup.com) is an integrated financial service provider inter alia engaged in the business of Investment Banking, Corporate Lending, Commodity Broking, Debt Syndication & Other Advisory Services. There were no significant and material disciplinary actions against ASBL taken by any regulatory authority during last three years. Disclosure ASBL or its associates, its Research Analysts (including their relatives) may have financial interest in the subject company(ies). However, the said financial interest is not limited to having an open stock market position in /acting as advisor to /having a loan transaction with the subject company(ies) apart from registration as clients. 1) ASBL or its Research Analysts (including their relatives) do not have any actual / beneficial ownership of 1% or more of securities of the subject company(ies) at the end of the month immediately preceding the date of publication of this report or date of the public appearance. However ASBL's associates may have actual / beneficial ownership of 1% or more of securities of the subject company(ies). 2) ASBL or their Research Analysts (including their relatives) do not have any other material conflict of interest at the time of publication of this research report or date of the public appearance. However ASBL's associates might have an actual / potential conflict of interest (other than ownership). 3) ASBL or its associates may have received compensation for investment banking, merchant banking, and brokerage services and for other products and services from the subject companies during the preceding 12 months. However, ASBL or its associates or its Research analysts (forming part of Research Desk) have not received any compensation or other benefits from the subject companies or third parties in connection with the research report. Moreover, Research Analysts have not received any compensation from the companies mentioned herein in the past twelve months. 4) ASBL or their Research Analysts have not managed or co managed public offering of securities for the subject company(ies) in the past twelve months. However ASBL's associates may have managed or co managed public offering of securities for the subject company(ies) in the past twelve months. 5) Research Analysts have not served as an officer, director or employee of the companies mentioned in the report. 6) Neither ASBL nor its Research Analysts have been engaged in market making activity for the companies mentioned in the report. Disclaimer The research recommendation and information herein are solely for the personal information of the authorized recipient and does not construe to be an offer documents or any investment, legal or taxation advice or solicitation of any action based upon it. This report is not for public distribution or use by any person or entity, where such distribution, publication, availability or use would be contrary to law, regulation or subject to any registration or licensing requirement. We will not treat recipients as customer by virtue of their receiving this report. The report is based upon the information obtained from public sources that we consider reliable, but we do not guarantee its accuracy or completeness. ASBL shall not be in anyways responsible for any loss or damage that may arise to any such person from any inadvertent error in the information contained in this report. The recipients of this report should rely on their own investigations. 5