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Like its peers, HDFC Standard Life Insurance is expected to put up a muted show on listing, thanks to expensive valuation of its initial public offer, according to various brokerage reports.
At the upper end of the price band (₹290), the issue is valued at 4.2 times H1FY18 embedded value compared to 3.2 times and 3.6 times for its life insurance peers — ICICI Prudential Life Insurance and SBI Life Insurance, respectively.
“Since the issue is being offered at expensive valuation, it may not offer major listing gains,” pointed out Centrum Wealth Research in its IPO note. Even Geojit and Motilal Oswal said that the issue’s valuation is steeper compared to its peers.
Long-term horizonNevertheless, brokerages still advise investors to subscribe to the IPO taking ‘only’ a long-term horizon as the company will be a natural beneficiary of the under-penetration of insurance in India, and structural developments like financialisation of household investments.
HDFC Standard Life is the second-largest and most profitable private life insurer in India. Besides strong parentage, the company has vast bancassurance and private agent network, along with its extensive reach and market share.
It is also the fastest growing life insurer in India and has reported best performance on important parameters like growth in renewal premium and value of new business margin compared to its peers.
However, all the positives seem to have been reflected into the stock price already, analysts said. The IPO may attract poor demand and listing gains are expected to be muted like its peers.
While ICICI Prudential life Insurance closed down 10.8 per cent on listing last year, SBI Life Insurance managed with just 1.1 per cent gain on closing. The two IPOs were subscribed 10.5 times and 3.6 times, respectively.
Even general insurance IPOs have not done well on listing. While General Insurance Corporation ended 4.6 per cent down on the first day of listing, ICICI Lombard General Insurance closed with gains of only 3.1 per cent on Day 1.
All these IPOs (except to some extent GIC) have been done through the offer-for-sale route. Hence, selling shareholders have extracted maximum value leaving little value on the table for the investing public. Accordingly, all the IPOs have had weak subscriptions.
Above all, broad market sentiments are also not upbeat these days, which can affect the IPO.
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