Extra cover

It is raining insurance IPOs and HDFC Standard Life Insurance is the latest to tap the public market. Its IPO was oversubscribed 4.9x, in comparison to SBI Life and ICICI Lombard, which saw an oversubscription of 3.6x and 2.98x, respectively. This enthusiasm got reflected on listing day when it debuted at Rs.344 in comparison to its issue price of Rs.290.

Given the red-hot listing, top management didn’t seem to have lost much time in making hay. After the listing on November 17, CEO Amitabh Chaudhry sold a million shares worth Rs.35 crore on November 20. This offloading at an average price of Rs.350 has reduced his stake in the firm from 0.23% to 0.18%. As per the IPO prospectus, Chaudhry was among the top 10 shareholders in the firm. Besides Chaudhry other directors, too, sold between November 17 and November 20, most prominent being CFO Vibha Padalkar who sold stock worth Rs.24.8 crore.

Through the IPO, the two key promoters, HDFC and Standard Life (Mauritius Holdings), brought down their shareholding from about 96% to 81%. HDFC reduced its stake from 61.2% to 51.69%, while Standard Life reduced its stake from 34.75% to 29.35%. Standard Life (Mauritius Holdings) is wholly-owned by Standard Life Aberdeen Plc.

Amidst the relatively lacklustre price performance of other insurance stocks, HDFC Standard Life owes its outperformance to strong operating metrics [annualised premium equivalent (metric used to determine sales) clocked a CAGR of 14.5%, during FY15-17] and brand equity, bestowed by housing finance major HDFC. The 13^th month individual persistency ratio (an indicator of client retention) has also improved from 73.3% in FY15 to 80.9% in FY17, and is second-best among large scale private players after ICICI Prudential Life Insurance.

HDFC Standard Life has consistently ranked among the top three in terms of market share and trades an price/embedded value of 3.4x  (FY20 Motilal Oswal Estimates). Analysts justify the valuation on account of its healthy new business margins, strong return ratios and its ability to leverage its network of 125 bancassurance partners to increase its sales.