HDFC Standard Life Insurance IPO has hit the primary market today that will remain open for subscription until November 9. The price band for the issue has been fixed at Rs 275-290. At the upper end of the price band, the third largest private sector insurer expects to raise a total of Rs. 8695.01 crore.
Here's a take on whether you should invest in the IPO by HDFC Life or not?
IPO details: The issue includes an offer for sale of 29.98 crore shares in total by both HDFC and Standard Life that proposed to dilute 9.55% stake and 5.42% stake respectively. The investors can subscribe for a minimum of 50 shares and in multiples of 50 equity shares thereafter. For its employees, the company has reserved 21.44 lakh shares, for HDFC employees the portion reserved in the issue is 8.05 lakh shares and for HDFC shareholders it is 2.99 crore shares.
From the anchor investors, the company ahead of its IPO issue raised a total of Rs 2,322 crore. As per the regulatory filing, anchor investors include Temasek, Kuwait Investment, JP Morgan, Blackrock, Fidelity, Norwegian Fund Norges.
Objective: As the IPO issue is a 100% OFS, the company would not be receiving any proceeds from the offer. As quoted in the PTI report, Chairman of the company Deepak Parekh said, "The funds raised will be used by HDFC Ltd for its business purposes as the insurance arm has the adequate capital needed for growth".
Stake dilution in the company through the issue will bring down ownership of HDFC in the joint venture company to 52% from 61.21% while Standard Life after offloading 5.4% stake in the company will own as much as 29.35% stake post the issue.
Financials and Valuation: For the sixth months period of the FY 2017-18, the company has reported a restated standalone net profit of Rs 554.85 crore. For the FY 17 , the gross premium income for the company stood at 19,445 crore and the total income was Rs 22,189 crore. Price to earnings ratio is 65.91 times considering the upper price band.
Conclusion: On the valuations front, the issue is an expensive bet in comparison to other listed peers. Nonetheless, brokerage firms have given a Subscribe to the issue with a long term horizon as the demand for similar quality issues had been good in the recent past.