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IPO Note: HDFC Standard Life Insurance Company Ltd.
Issue Snapshot
CompanyName
HDFC Standard Life Insurance Company Ltd.
Issue Opens November 07, 2017 to November 09, 2017
Price Band Rs. 275 to Rs. 290
Bid Lot 50 Equity Shares and in multiples thereof.
The Offer
Public issue of 299,827,818 Equity shares of Face value
Rs.10 each, (Comprising of Offer for Sale by Selling
Shareholder (HDFC Ltd.: 191,246,050 Equity Shares and
Standard Life: 108,581,768 Equity Shares).
Issue Size Rs. 8246.26 – 8695.01 Crore
IPO Process 100% Book Building
Face Value Rs. 10.00
Exchanges NSE & BSE
BRLM
Morgan Stanley India Company Private Limited, HDFC Bank
Limited, Credit Suisse Securities (India) Private Limited,
CLSA India Private Limited, Nomura Financial Advisory and
Securities (India) Private Limited, Edelweiss Financial
Services Limited, Haitong Securities India Private Limited,
IDFC Bank Limited, IIFL Holdings Limited and UBS Securities
India Private Limited
Registrar Karvy Computershare Private Limited
Industry: Life Insurance Recommendation: Subscribe Date: November 06, 2017
1008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com
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 “HDFC Life” brand name and provide liquidity to the existing Shareholders.
Issue Break up
Issue Size Allocation Equity Shares*
QIB ex Anchor 20% 53,379,103
Anchor Investor 30% 80,068,655
HNI 15% 40,034,328
RII 35% 93,413,431
Total Public 100% 266,895,517
Employee Reservation 2,949,520
HDFC Shareholders 29,982,781
Total 299,827,818
Company Highlights
HDFC Standard Life Insurance Company Limited, is among the top five private life insurers in India (measured on total
new business premium) in FY16 and FY17and also one of the most profitable life insurers in India (based on Value of
New Business (VNB) margin), , according to CRISIL. Besides consistently being among the top three private life
insurers in terms of profitability based on VNB margin, the Company has also consistently been among the top three
private life insurers in terms of market share based on total new business premium between FY15 and FY17,
according to CRISIL.
The company has a healthy balance sheet with total net worth of Rs. 41.5 billion and a solvency ratio of 200.5% as at
September 30, 2017, above the minimum 150.0% solvency ratio required under IRDAI regulations. HDFC Standard
Life insurance generated Profit After Tax of Rs. 8,869.2 million and delivered a Return on Equity of 25.6%, Return on
Invested Capital of 40.7% and Operating Return on Embedded Value of 21.7% during FY17. As at September 30,
2017, it had total AUM of Rs. 995.3 billion and Indian Embedded Value of Rs. 140.1 billion. VNB Margin for H1 FY18
was recorded at 22.44% and for FY17 at 22.02%.
Equity Share Pre Issue (Nos. Cr.) 200.9
Fresh Share (Nos. Cr.) 0.0
OFS Share (Nos. Cr.) 30.0
Equity Share Post Issue (Nos. Cr.) 200.9
Market Cap (Rs. Cr.)* 58,260.2
Dilution 14.9%
Fresh 0%
OFS 14.9%
* Based on Higher Price Band @ 290
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21008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com
The Company believes that its strong parentage and its trusted brand enhance its appeal to consumers. It 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), initially through its wholly owned subsidiary The Standard Life Assurance Company and now through its
wholly owned subsidiary, Standard Life Mauritius.
The Company 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
non‐participating 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. Its wide product suite caters to specific
needs of customers during each stage of their lives. It also provides 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.
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.
View
HDFC Life is one of the most profitable life insurers, based on Value of New Business (VNB) margin, among the top 5
private life insurers in India (measured on total new business premium) in FY16 and FY17, according to CRISIL. VNB
margin stood at 22.4% as on 30th Sep, 2017. AUM was Rs. 99,534 cr as on Sep 17, grown at a CAGR of 17% from
FY15-FY17. Total new business premium for FY17 and H1FY18 was Rs. 8,696.4 cr and Rs. 4,402.9 cr respectively.
Between FY15-FY17, their annualised premium equivalent has grown at a CAGR of 14.5%. Its 13th month individual
persistency ratio stood at 80.9% and 82.2% for FY17 and H1FY18 respectively. As on Sep 30, 2017, company has a
pan-India presence, comprising 414 branches spread across India and is 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. HDFC Life sells policies through a multi channel network.
This includes direct sales through own branches, Insurance agents, Partner Banks and through other financial
institutions. Company has over 66,372 individual agents.
On performance front, company’s revenue and net profit has grown at a CAGR of 22% and 19% respectively over the
last 5 years. For H1FY18, it has posted net profit of Rs. 554.8 cr on a total income of Rs. 14,415 cr. It has a healthy
balance sheet with total net worth of Rs. 44.6 bn and strong solvency ratio of 2x as on 30th Sep, 2017 as against
regulatory minimum of 1.50x. Its 12.6% expense ratio is slightly lower that the industry average of 13%. Death
Claim Settlement Ratio for HDFC Life is better than peers at 99.2% compared to 98% for SBI Life and 97.2% for ICICI
Prudential, as on FY17. During FY 17 the company reported strong ROE of 25.6%, ROCE of 40.7% and Operating
Return on Embedded Value of 21.7%. As on 30th Sep, 2017, its Indian Embedded Value stood at Rs.14,011.4 cr.
At the higher price band, the issue is valued at 4.2x as on 30th Sep, 2017 embedded value, which is at premium when
considered with 3.9x and 3.6x embedded value for SBI Life and ICICI Prudential respectively. However, considering
robust VNB margins, lower operating expenses ratio and strong persistency ratio coupled with healthy premium
growth, the premium valuations are justified. Considering low insurance penetration in India and improvement in
share of financial savings in household savings, together with strong operational metrics for HDFC Life, we
recommend to “SUBSCRIBE” the issue from long term investment perspective.
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31008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com
Consolidated Financial Statement
(In Rs. Cr.) FY13 FY14 FY15 FY16 FY17 Q1FY18
Statement of Assets and Liabilities
Shareholders' Funds
Share Capital 1,994.9 1,994.9 1,994.9 1,995.3 1,998.5 2,005.6
Reserves and Surplus 196.2 165.4 548.4 1,149.4 1,795.5 2,409.0
Credit/(Debit) Fair Value Change Account (10.3) 2.7 (2.0) (41.2) 32.3 49.1
Sub-total 2,180.8 2,163.1 2,541.3 3,103.5 3,826.3 4,463.6
Policyholders' Funds
Credit/(Debit) Fair Value Change Account (78.4) 31.1 61.3 53.6 398.1 567.1
Policy Liabilities 10,155.6 14,339.7 19,279.2 24,400.6 32,382.7 36,537.6
Provision for Linked Liabilities 27,794.6 32,735.7 42,140.2 42,753.8 50,806.5 52,938.6
Funds for discontinued policies 538.5 1,471.7 2,780.2 2,973.2 2,994.0 3,192.3
Sub-total 38,410.3 48,578.1 64,260.8 70,181.3 86,581.3 93,235.6
Funds for Future Appropriations 648.6 313.0 464.1 705.5 866.8 929.1
Total Sources of Funds 41,239.6 51,054.1 67,266.2 73,990.2 91,274.4 98,628.3
Investments
- Shareholders' 855.7 1,613.5 2,194.7 2,553.8 3,231.4 3,702.7
- Policyholders' 11,215.2 14,706.2 19,908.5 25,862.9 34,691.5 39,686.2
Assets held to cover Linked Liabilities 28,333.1 34,207.4 44,920.4 45,727.0 53,800.5 56,130.9
Loans 78.2 47.7 125.6 93.1 47.9 16.2
Fixed assets 281.8 289.5 352.5 347.4 353.5 344.0
Current Assets 1,153.9 1,410.6 1,806.9 1,960.3 2,971.8 2,346.9
Current Liabilities 1,521.9 1,455.8 2,042.3 2,554.1 3,822.2 3,598.7
Net Current Assets (368.0) (45.2) (235.4) (593.9) (850.4) (1,251.8)
Total Application of Funds 41,239.6 51,054.1 67,266.2 73,990.2 91,274.4 98,628.3
Revenue Account (Policyholders’ Account/Technical Account)
Premiums earned - Net 11,446.1 11,976.4 14,762.5 16,178.8 19,274.9 9,051.0
Income from Investments 2,542.7 5,073.1 12,249.3 1,790.6 11,140.6 5,278.3
Other Income 27.6 241.2 78.9 97.1 138.9 85.7
Total (A) 14,016.3 17,290.7 27,090.6 18,066.5 30,554.4 14,415.0
Commission 647.3 514.1 623.5 701.9 792.0 403.7
Operating expenses (Insurance Business) 1,216.0 1,280.5 1,488.8 1,871.8 2,385.3 1,282.6
Provision for Tax 50.9 151.6 119.3 174.6 152.0 22.4
Provisions (other than taxation) 0.0 27.5 (2.5) 3.2 6.3 (6.5)
Service Tax on charges 128.0 134.0 153.2 185.4 216.1 131.7
Total (B) 2,042.2 2,107.7 2,382.3 2,936.8 3,551.6 1,834.0
Benefits paid (Net) 3,902.8 4,661.9 8,162.4 8,176.9 9,842.2 5,485.6
Interim & terminal bonuses paid 18.7 32.9 71.4 65.1 158.2 94.7
Change in valuation of liability 7,414.9 10,058.4 15,652.5 5,928.1 16,054.8 6,482.5
Total (C) 11,336.5 14,753.2 23,886.3 14,170.1 26,055.2 12,062.9
Surplus/ (Deficit) (D) = (A) - (B) - (C) 637.6 429.8 822.1 959.6 947.6 518.1
Source: RHP
Ash
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edAshika Research - Equities
41008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com
(In Rs. Cr.) FY13 FY14 FY15 FY16 FY17 Q1FY18
Profit And Loss Account (Shareholders’ Account/Non-technical Account)
Transfer from Policyholders' account 390.0 765.4 670.9 718.3 786.3 455.8
Income from Investments 71.1 116.1 203.3 171.2 230.3 123.1
Other Income - - 0.0 10.6 0.1 13.3
Total (A) 461.2 881.5 874.2 900.0 1,016.7 592.2
Expenses (apart from insurance) 7.8 15.7 23.0 25.4 76.8 14.1
Contribution to the Policyholders' A/c 1.9 217.3 46.7 38.0 35.4 7.4
Provisions (Other than taxation) 0.0 5.9 (0.1) 3.3 (4.4) (0.3)
Total (B) 9.7 238.9 69.6 66.7 107.8 21.3
Profit / (Loss) Before Tax 451.5 642.5 804.6 833.4 908.9 570.9
Provision for Taxation 4.2 (82.8) 19.1 16.6 22.0 16.8
Profit / (Loss) After Tax 447.2 725.3 785.5 816.8 886.9 554.1
Diluted EPS (Rs.) 2.2 3.6 3.9 4.1 4.4 2.8
Receipts and Payments Account
Cash flow from Operations Activities 5,541.2 5,421.9 4,459.5 5,687.5 6,230.3 1,919.0
Cash flow from Investing Activities (4,959.4) (5,501.5) (3,514.5) (3,959.1) (5,175.2) (1,670.1)
Cash flow from Financing Activities - (116.7) (167.6) (212.4) (235.6) 65.8
Net increase/(decrease) in cash and cash equivalents 581.8 (196.3) 777.5 1,513.0 817.4 315.3
Cash and cash equivalents at the beginning of the year 1,188.2 1,770.0 1,573.7 2,351.1 3,864.1 4,681.5
Cash and cash equivalents at the end of the year 1,770.0 1,573.7 2,351.1 3,864.1 4,681.5 4,996.9
Statement of Premium Income
First year premiums 3,123.5 2,370.0 2,951.5 3,368.4 3,657.0 1,800.5
Renewal premiums 7,081.7 8,047.6 9,365.1 9,862.1 10,824.5 4,737.4
Single premiums 1,297.0 1,645.3 2,513.3 3,082.5 4,964.0 2,602.4
Total Premium 11,502.2 12,062.9 14,829.9 16,313.0 19,445.5 9,140.3
Source: RHP
Comparison with listed industry peers
Name of the companyEPS(Rs.)
NAV(Rs.)
P/E(x)
P/B(x)
RoNW(%)
Market Cap(Rs. Cr.)
HDFC Life 4.4 19.1 65.9 15.2 25.6 58,260
SBI Life 9.6 55.5 67.1 11.6 18.6 64,390
ICICI Pru 11.7 44.6 34.2 9.0 28.7 57,469
Source: RHP, Ashika ResearchNote: HDFC Life fig. are calculated based on higher price band. All Fig. are of FY17
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51008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com
(In Rs. Mn.) FY15 FY16 FY17 Q1FY18
Key Performance Indicators
Total premium 148,299 163,130 194,455 91,403
Net premium 65,752 80,572 94,825 35,752
AUM 670,467 742,472 917,424 995,340
New business sum assured 1,815,761 2,714,860 3,887,575 1,965,449
Embedded value 88,882 102,325 124,705 140,114
VNB 5,915 7,393 9,225 4,782
VNB margin 18.5% 19.9% 22.0% 22.4%
EVOP 16,012 18,372 22,193 12,576
APE* 31,946 37,095 41,882 21,307
Total operating cost ratio 10.2% 11.6% 12.7% 14.2%
13th month persistency 73.3% 78.9% 80.9% 82.2%
61st month persistency 39.8% 50.0% 56.8% 55.4%
Operating Return on Embedded Value 22.9% 20.7% 21.7% 21.2%
Insurance profits 6,242 6,803 7,510 4,484
Profits after tax 7,855 8,168 8,869 5,541
Insurance profit as % of total profit after tax 79.5% 83.3% 84.7% 80.9%
Solvency ratio 196.1% 198.4% 191.6% 200.5%
Return on Net worth 35.2% 28.9% 25.6% 13.4%
Net Asset Value Per share (Rs.) 12.7 15.6 19.1 22.3
Number of lives insured (in millions) 5.7 15.4 20.9 11.7
Persistency Ratio
13th Month 73.3% 78.9% 80.9% 82.2%
25th Month 64.0% 67.5% 73.3% 74.4%
37th Month 65.1% 60.1% 63.9% 65.6%
49th Month 64.2% 63.4% 58.3% 59.3%
61st Month 39.8% 50.0% 56.8% 55.4%
Source: RHP
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61008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com
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Name Designation Email ID Contact No.
Paras Bothra President Equity Research [email protected] +91 22 6611 1704
Krishna Kumar Agarwal Equity Research Analyst [email protected] +91 33 4036 0646
Partha Mazumder Equity Research Analyst [email protected] +91 33 4036 0647
Arijit Malakar Equity Research Analyst [email protected] +91 33 4036 0644
Kapil Jagasia Equity Research Analyst [email protected] +91 22 6611 1715
Tirthankar Das Technical & Derivative Analyst [email protected] +91 33 4036 0645
Research Team