SBI Life, ICICI Pru valuations zoom

SBI Life Insurance has seen its valuation increase by 33 per cent in just three months. Similarly, its competitor, ICICI Prudential, has seen its valuation increase by 35 per cent in five months.

"Last month, an international valuer valued SBI Life at $5.5-6 billion," U S Roy, MD and CEO of the company, said. The $6 billion valuation is an increase of 33 per cent over the $4.5 billion valuation done by DSP Merrill Lynch in May.

SBI Life Insurance is a joint venture between State Bank of India and Cardif, a BNP Paribas company. The company has an authorised capital of Rs 1,000 crore and a paid-up capital of Rs 500 crore. SBI owns 74 per cent stake in the company and Cardif the remaining 26 per cent.

Speaking about the increase in the valuation of the company, Roy said, "When SBI Life was first valued at $1.2 billion, it did not take into account the 14,500-strong branch network of SBI and its associate banks "" the distribution network used by SBI Life to enter smaller towns; the brand strength, the work being done to strengthen the NBAP margins (New Business Achieved Profit) and the embedded value. This time, the analysts took into account the appreciation of the intrinsic strength of the unique distribution system," said Roy.

"Our expense ratio is 11 per cent compared with the industry expense ratio of 15 to 17 per cent. We explained to the analysts to include these features and strengths which were not reflected in the earlier valuation," added Roy.

For arriving at a valuation, analysts take into account various assumptions like investment yield, expense margin and product margin, besides factors like growth of a company, market share, sensitivity of products to the market, new business multiples and profit margin.

Meanwhile, JP Morgan, which valued ICICI Prudential at $7.43 billion in March, revised the figure to $10 billion in August. The 74 per cent share of ICICI Bank in ICICI Prudential Life Insurance company has been given a valuation of $7.4 billion.

The JP Morgan report dated August 31 says, "In March 2002, when ICICI was merged with the bank, the insurance business had barely taken off and since then we have seen a significant expansion in the life and non-life businesses, culminating in the announcement of the holding company.

Putting all these non-banking businesses together, we arrive at a value of $10.2 billion for ICICI Bank's share in them (74 per cent in ICICI Prudential and ICICI Lombard and 51 per cent in Prudential ICICI Asset Management Company) and $ 21.1 billion for the bank itself, resulting in a combined valuation of $31.3 billion equivalent to Rs 1,140 a share one year forward (September 2008)."

ICICI Prudential is a joint venture between ICICI Bank and Prudential of the UK. The JP Morgan report dated August 31 says "In March 2002, when ICICI was merged with the bank, the insurance business had barely taken off and since then we have seen a significant expansion in the life and non-life businesses, culminating in the announcement of the holding company.

Putting all these non-banking businesses together, we arrive at a value of $10.2 billion for ICICI Bank's share in them (74 per cent in ICICI Prudential and ICICI Lombard and 51 per cent in Prudential ICICI asset management company) and $ 21.1 billion for the bank itself, resulting in a combined valuation of $ 31.3 billion equivalent to Rs 1,140 per share one year forward (September 2008)."

ICICI Prudential is a joint venture between ICICI Bank and Prudential plc of the UK.