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

Street was expecting muted listing given tepid demand from retail and HNI during the Rs 8,700-cr IPO

Share prices of HDFC Standard Life Insurance Company soared as much as 27 per cent on Friday on its debut listing, amid buoyancy in the secondary market after Moody’s Investors Service upgraded India’s sovereign bond rating, the first in nearly 14 years.

The share closed at Rs 344, up Rs 54 or 18.6 per cent from its Initial Public Offer (IPO) allotment. The stock touched a high of Rs 369 and a low of Rs 307 in intra-day trade, with Rs 6,230 crore worth changing hands on the National Stock Exchange and the BSE.

The Street was expecting a muted listing, going by the tepid demand from the retail category (non-wealthy individuals) and high net worth individuals (HNIs) during the Rs 8,700-crore IPO (largest by a private company in nearly a decade) which closed on November 9. The retail portion of the IPO was subscribed only 80 per cent; the HNI category saw 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 on sector IPOs after weak post-listing performance of most companies in the segment. HDFC Life proved an exception, thanks to parent HDFC’s strong standing and exuberance in the market due to the rating upgrade.

HDFC Life now trades at nearly five times its embedded value as on September, more expensive than ICICI Prudential and SBI Life, which are valued around 3.5 times. At the current market rate, HDFC Life is valued at Rs 69,159 crore, ICICI Prudential Life at Rs 56,245 crore and SBI Life at Rs 65,975 crore.

“We believe the slight premium is justifiable, considering, consistent growth across premium categories, improving dividend payout over 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.