The numbers of SBI Life Reinforce SBI Deal Valuation

Market analysts are divided regarding the

question Does a value of Rs 46,000 cr for
SBI Life Insurance that holds a little over 9
per cent market share, look rich?. The
answer could of course be discovered in its
performance in the first half of 2016-17.
The 3.9 per cent stake sale by the insurers
parent, SBI - State Bank of India (SBI), to KKR
and Temasek Holdings at Rs 460 a share
valued the business at Rs 46,000 cr, a shade
lower than ICICI Prudential Life Insurance (valued at Rs 47,957 cr through the initial
public offering or IPO in September). Meanwhile, SBI share price closed at Rs 264.75 on
the NSE on 16th December, 2016.
The life insurance unit of the nations largest lender SBI showed an impressive 77 per
cent growth in its novel business premium to Rs 4,644 cr, driven by the 54 per cent
growth in the most coveted segment of individual novel business premium. The insurer
posted a 6 per cent soar in its net profit to Rs 428 cr for the 6-month period ended
September in spite of such a scorching pace of growth. Insurance is a sector where high
growth tends to bleed the business entity.
However the biggest argument for valuation was the embedded value of Rs 13,000 cr
for 2016-17 as disclosed by the insurer. The deal values the firm at 3.5 times its
embedded value of 2016-17, which looks cheap as compared to ICICI Prudential Life
Insurance being valued at a multiple of 3.45 and HDFC Max Life at 4.3. As per some
analysts, SBI Lifes valuation is 2.47 times its expected earnings for 2017-18, cheaper
than both ICICI Prudential Life and the combined HDFC Max Life Insurance.
Another point underscoring the stated value was the cost efficiency of SBI Life. Its ratio
of operating cost to the total weighted received premium was 14 per cent, down from

17 per cent in the same period of the previous fiscal year. Market analysts noted that
cost ratios were among the best in the industry, resulting in superior margins. They
expect operating expense ratios to only increase from here on given the growth rates.
When compared, ICICI Prudential Life Insurances cost ratios rose to 15.6 per cent from
14.1 per cent.
Given the firm pedigree the insurer enjoys and favorable earnings metrics, there is little
reason to question the current valuations. The insurers long term prospects too seem
to trump those of its peers. SBI Lifes persistency ratios for 13th month and 61st month
are 77.4 per cent and 26.97 per cent, respectively, an enhancement from the previous
year and its renewal premium business increased by 20 per cent.
For further information, please visit SBI share price history.
Disclaimer
The investment advice or guidance provided by way of recommendations, reports or other ways are solely the personal views of the
research team. Users are advised to use the data for the purpose of information and rely on their own judgment while making
investment decision.
Dynamic Equities Pvt. Ltd - SEBI Investment Advisory Reg. No.: INA300002022
Disclosure
Dynamic Equities Pvt. Ltd. is a member of NSE, BSE, MCX SX and a DP with NSDL & CDSL. It is also engaged in Investment Advisory
Services and Portfolio Management Services. Dynamic Commodities Pvt. Ltd., associate company, is a member of MCX & NCDEX. We
declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are
registered. SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise
letters or levied minor penalty on for certain operational deviations.
Answers to the Best of our knowledge and belief of Dynamic/ its Associates/ Research Analyst: DYNAMIC/its Associates/ Research
Analyst/ his Relative:
Do not have any financial interest / any actual/beneficial ownership in the subject company.
Do not have any other material conflict of interest at the time of publication of the research report
Have not received any compensation from the subject company in the past twelve months
Have not managed or co-managed public offering of securities for the subject company.
Have not received any compensation for brokerage services or any products / services or any compensation or other benefits
from the subject company, nor engaged in market making activity for the subject company
Have not served as an officer, director or employee of the subject company

Article Written by
Salman Hashmi