HDFC Life rides on parentage, Moody’s upgrade, shares soar 19% on debut

November 17
20:16 2017

Private life insurer HDFC Standard Life Insurance Company stunned the Street with a stock listing day performance. Shares of the company soared as much as 27 per cent amid buoyancy in the secondary market, after Moody’s Investors Service upgraded India’s sovereign bond rating, the first time in nearly 14 years. Shares of HDFC Life closed at Rs 344, up Rs 54, or 18.6 per cent. The stock touched a high of Rs 369 and a low of Rs 307 in intra-day trade, with Rs 6,230 crore worth of shares changing hands on the National Stock Exchange (NSE) and the BSE.

The Street was expecting a muted listing given the tepid demand from retail and high networth individual (HNI) during the Rs 8,700-crore initial public offering (IPO), which closed on November 9. The retail portion of the IPO was subscribed just 80 per cent, while HNI category saw only 2.3 times demand. Demand from institutional investors was high at 16 times the shares on offer. Overall, the IPO was subscribed five times.

Retail investors had turned cautious towards insurance sector IPOs after weak post-listing performance of most insurance companies. HDFC Life, however, managed to buck the trend thanks parent HDFC’s strong standing in the market and exuberance in the market triggered by the rating upgrade.

HDFC Life’s IPO was largest by a private sector firm in nearly a decade.

HDFC Life now trades at nearly five times its embedded value as on September 2017, more expensive than ICICI Prudential and SBI Life, which are valued around 3.5 times.

At current market rate, HDFC Life is valued at Rs 69,159 crore. In comparison, peers such as ICICI Prudential Life and SBI Life are vauled at Rs 56,245 crore and Rs 65,975 crore respectively.

Some analysts believe HDFC Life’s premium valuations are justified. “We believe slight premium is justifiable, considering, consistent growth across premium categories, improving dividend payout over last four years, strong parentage, trusted brand name, highest value of new business margin (22 per cent for FY2017) and well-balanced business mix,” Angel Broking had said in a note.

Analysts say insurance stocks are a play on higher penetration of insurance products amid rising share of financial assets in household savings. Insurance in India is deeply under-penetrated currently. However, these benefits will only accrue in long-term, they warn.

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