HDFC Standard Life Insurance Company Ltd. (HSLIC) was established in 2000 as a joint venture between HDFC Ltd. and Standard Life Aberdeen plc (one of 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. HSLIC was one of the most profitable life insurers, based on Value of New Business (VNB) margin among the top five private life insurers in India in FY16 and FY17, according to CRISIL. Its total New Business Premium for FY15, FY16 and FY17 was `54,921mn, `64,872mn and `86,964mn. Between FY15 and FY17, its annualized premium equivalent grew by a CAGR of 14.5%.
Valuation & Investment Argument
HSLIC was one of the most profitable life insurers, based on Value of New Business Margin, among the top five private life insurers in India in FY16 and FY17, according to CRISIL. HSLIC has been consistently gaining market share in terms of total new business premium, from 15.8% in FY15 to 17.2% in FY17. With Life Insurance penetration in India at a meagre 2.6% in 2016 as against the global average of 3.5% in 2016 (comparable Asian counterparts of Thailand, Singapore and South Korea have penetration levels of 3.7%, 5.5% and 7.4% respectively), we believe HSLIC is well poised to capture the huge opportunity in the Life Insurance sector in India.
At the price band of `275-290 the issue is priced at ~3.9-4.2x its Sep-17 Embedded Value of `69.7 per share. We believe the premium valuations compared to ICICI Prudential Life Insurance and SBI Life Insurance are justified due to comparatively higher NBP growth, best in class New Business Margin (NBM) of 22%, consistently high return ratios over the years, higher renewal premium growth over five years (FY12-FY17), lower mis-selling, better death-claims settlement ratio and lowest claims repudiation ratio. We advise investors with a long-term investment horizon to SUBSCRIBE to the issue.
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