Deepak Parekh , chairman of Housing Development FinanceBSE 1.54 % Co . ( HDFC ), is back in the IPO market. Parekh, who gave HDFC Bank to Indian investors, is coming up with HDFC Life's share sale next month. In an interview with MC Govardhana Rangan and Shilpy Sinha, he talks about the prospects for the industry, and how the federal government's reforms are helping lift the sentiment in the busy season for the local ..
You were the first to announce the IPO for a life insurer, and held it back for the merger. So, why are you going in for the IPO of HDFC Life now?
We are optimistic about the future of insurance. It is totally underpenetrated in India. India has a very low penetration level compared with the global average. We saw more money coming in into the banking system after the demonetisation, and a part of it is now finding its way into mutual funds and insurance. We thought we should now go for an IPO. We have mothered and fathered it for so long and now it is time for them to fend for themselves. We have tried to build a life insurance company the same way we built HDFC over the last 40 years. IPO gives you more transparency.
We are optimistic about the future of insurance. It is totally underpenetrated in India. India has a very low penetration level compared with the global average. We saw more money coming in into the banking system after the demonetisation, and a part of it is now finding its way into mutual funds and insurance. We thought we should now go for an IPO. We have mothered and fathered it for so long and now it is time for them to fend for themselves. We have tried to build a life insurance company the same way we built HDFC over the last 40 years. IPO gives you more transparency.
Although there is potential, the growth rate has been varied...
Our five-year compounded annual growth Rate is 18%, which is twice the industry at 9%. We are number one in new business income growth.Our 13th month persistency level is 82% (a sign of sustained, profitable growth). Our solvency is 200%. You require 150%. We don't need more capital in the life company. Therefore, it is an offer for sale. We have been feeding capital for all these years when they made losses. Every second year we have put in equi ty. It is now time to return. There is no free lunch, no free money.
Our five-year compounded annual growth Rate is 18%, which is twice the industry at 9%. We are number one in new business income growth.Our 13th month persistency level is 82% (a sign of sustained, profitable growth). Our solvency is 200%. You require 150%. We don't need more capital in the life company. Therefore, it is an offer for sale. We have been feeding capital for all these years when they made losses. Every second year we have put in equi ty. It is now time to return. There is no free lunch, no free money.
Investor experience so far with insurance IPOs has not been good. Are you making a difference?
We understand that too many IPOs have happened recently. We understand there may be a little fatigue in the market because of many insurance IPOs in life and non-life. We took a call on pricing and did not accept our investment bankers' advice. Some people priced it based on 2019 embedded value. I think that is a little too stretched. I don't believe in all that. In March, our embedded value was Rs 12,000 crore and now it is Rs 14,000 crore. I have worked in investment banking and I know how investment bankers are. The other thing is we are not a family-run company. We know the only source of capital for us is the public.HDFC's success has been because of public money whether individual, institutional, or foreign. We don't have capital of our own. We understand that for us to survive, we need the confidence of our shareholders. Unless they make money, they will not give us money.
We understand that too many IPOs have happened recently. We understand there may be a little fatigue in the market because of many insurance IPOs in life and non-life. We took a call on pricing and did not accept our investment bankers' advice. Some people priced it based on 2019 embedded value. I think that is a little too stretched. I don't believe in all that. In March, our embedded value was Rs 12,000 crore and now it is Rs 14,000 crore. I have worked in investment banking and I know how investment bankers are. The other thing is we are not a family-run company. We know the only source of capital for us is the public.HDFC's success has been because of public money whether individual, institutional, or foreign. We don't have capital of our own. We understand that for us to survive, we need the confidence of our shareholders. Unless they make money, they will not give us money.
What about the pricing?
We have priced it at Rs 275-Rs 290 apiece. We believe we have it reasonably priced. We are selling 29.9 crore shares, of which 26.5 crore is IPO. Our shareholders will get 10% and 20 lakh is for employees. The listing is on November 17.
After liberalisation, we have four five large players and many small companies doing Rs 100 crore premium. What does it say about the industry?
That is why I think consolidation will happen. At some stage, they will have to consolidate. Many Indian promoters began operations because they got premium from the foreign partner. The foreign partner brought in Rs 20 for Rs 10 by the Indian partner.
We have priced it at Rs 275-Rs 290 apiece. We believe we have it reasonably priced. We are selling 29.9 crore shares, of which 26.5 crore is IPO. Our shareholders will get 10% and 20 lakh is for employees. The listing is on November 17.
After liberalisation, we have four five large players and many small companies doing Rs 100 crore premium. What does it say about the industry?
That is why I think consolidation will happen. At some stage, they will have to consolidate. Many Indian promoters began operations because they got premium from the foreign partner. The foreign partner brought in Rs 20 for Rs 10 by the Indian partner.
With HDFC Bank opening up to more insurance firms, will HDFC Life get lower business from the bank?
I don't think so. HDFC Asset Management is an open structure from day one. Our bank sells half a dozen asset products. You see what share HDFC AMC gets.
I don't think so. HDFC Asset Management is an open structure from day one. Our bank sells half a dozen asset products. You see what share HDFC AMC gets.
Do you regret that the Max courtship delayed your IPO?
In a way, I am very happy. Let others come and see what their pricing is. We have grown over the one year. A year ago, our embedded value was in four digits, not five. Hope fully, we are more mature today. The only thing is that we couldn't work the merger. Analjit Singh and his team have built professionally one of the best companies. But he has to sort out his shareholding. The regulator said no to him, not to us.
In a way, I am very happy. Let others come and see what their pricing is. We have grown over the one year. A year ago, our embedded value was in four digits, not five. Hope fully, we are more mature today. The only thing is that we couldn't work the merger. Analjit Singh and his team have built professionally one of the best companies. But he has to sort out his shareholding. The regulator said no to him, not to us.
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