Reliance Nippon Life Insurance IPO Details and Review

October 23, 2017

  1. About Reliance Nippon Life Insurance Company (RNLIC)
  2. Business Operations of Reliance Nippon Life Insurance Company (RNLIC)
  3. Key Strengths of Reliance Nippon Life Insurance Company (RNLIC)
  4. Promoters of Reliance Nippon Life Asset Management Ltd.
  5. Financial Highlights or Financial Performance of RNLIC IPO
  6. Reliance Nippon Life Insurance Company (RNLIC) IPO Details
  7. Objective of IPO
  8. Risks for investors for RNLIC IPO

About Reliance Nippon Life Insurance Company (RNLIC)

Reliance Nippon Life Insurance Company is Life Insurance Company with headquarters based at Navi Mumbai (New Mumbai), India. RNLIC has total assets of INR 150 Billion (US$2.3 billion).

RNLI is one of the largest Life Insurance Company with market share of 5% holding over 10 million policyholders. The company has 700 branches across India allowing for a strong distribution network with over 75,000 advisors as on 31st March, 2017. RNLI has a record for top claim settlement ratios that is 95.21% as on 31st March, 2017.

In 2016, Brand Equity’s Most Trusted Survey rated RNLIC as the Top 4 Most trusted Life Insurance service Brands.

Business Operations of Reliance Nippon Life Insurance Company

The major products of RNLIC are individual and Group/corporate Insurance Plans in five segments such as Retirement, Protection, Savings & Investment, Child and Health. Reliance Nippon Life is also involved in Mutual funds, ETFs, alternative Investment funds (ETFs) and pension funds along with offshore funds and advisory mandates. It also holds 55 open-ended mutual fund schemes along with 16 ETFs and 174 closed ended schemes.

In Financial Year 2016, Nippon Life increased its ownership stake from 26% to 49% in Reliance Life. Nippon Life Insurance (Nissay) has 25% of market share which makes it largest private life insurance company in Japan boasting revenue of INR 3,66,198 Crore and Profit of INR 41,380 Crores as of 31st March, 2016. The company has over 29 million policies in Japan.

Globally, company operates in Japan, North America, Europe and Asia with headquarter in Osaka, Japan. Global Fortune 500 firms ranked it as 114in 2016.

Key Strengths of Reliance Nippon Life Insurance Company (RNLIC)

• RNLIC is one of the leading asset management company based on strong promoters.
• RNLIC has multi-channel distribution Network with strong base of infrastructure branches across India.
• Focused and comprehensive suite of products with higher customer centricity.
• Diversified portfolios and product categories in mutual funds and ETFs.
• Highly experienced management team with grasp over technology based innovation for improved services.
• RNLIC has a record of inorganic growth through various strategic business acquisition decisions along with overseas market expansion and penetration.
• In 2014, ET Best Brands voted RNLIC as of the Top 200 Brands in India.
• In 2014, Reliance Life was given as Business Continuity Team of the Year award by Business Continuity Institute, UK
• In last 5 years, RNLIC has strong revenue growth at CAGR of 18%.
• In last 5 years, RNLIC has profits of 28% (standalone) and 29% (Consolidated).
• The first AMC Company to get listed in Indian stock market is RNLIC.

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Promoters of Reliance Nippon Life Asset Management Ltd.

The Promoters are –
1. Reliance Capital Limited
2. Nippon Life Insurance Company

Financial Highlights or Financial Performance of RNLIC IPO

The following table gives a summary of key financial highlights of RNLIC over the period of 2013 – 2017.

The above table illustrates a rapid increase in Total Asset over the period 2013 to 2017 where the Total Revenue and Profit after tax also increase over the same period of years.

In financial year 2016 – 2017, the revenue reported by RNLIC is 10% up from the previous financial years along with 4% increase in net profit compared to previous financial year.

Reliance Nippon Life Insurance Company IPO Details

Objective of IPO –The objective of RNLIC IPO are following –
1. Creation of new infrastructure for new branches and relocation of some existing branches.
2. Enhancement of IT Systems for improved services.
3. Funding inorganic growth through strategic procedures.
4. Investment in new mutual fund schemes.
5. Marketing, advertisement and brand image enhancement activities.
6. Lending to Reliance AIF (Subsidiary of RNLIC) for new AIF Schemes.

Issue Open Dates25-Oct-2017 (Wednesday) – 27-October-2017 (Friday)
Face ValueRs 10 per Equity Share
Issue PriceRs 247 – Rs 252 per Equity share
Market Lot Size59 Shares
1 Lot Investment RangeRs. 14,573 – Rs. 14,868
Listing atBSE and NSE
Type of the IssueBook Built Issue IPO
Size of Issue61,200,000 Equity Shares of Rs 10 aggregating up to Rs 1,542.24 Cr
• Offer for Sale of 36,720,000Equity Shares of Rs 10
• Fresh Issue of 24,480,000Equity Shares of Rs 10
Key Business Segments for RevenueIndividual and Group Insurance Plans in segments of protection, retirement, child, savings & investment and health.
Promoter of RNLICReliance Capital Limited and Nippon Life Insurance Company
Finalization of Basis of Allotment (Tentative)01st November, 2017
Initiation of Refunds (Tentative)03rd November, 2017
Credit of Shares to DEMAT Account (Tentative)03rd November, 2017
Commencement of Trading (Tentative)06th November, 2017

Risks for investors in RNLIC IPO

Following are some the risks stated by the brokerage houses –

• RNLIC’s operations are highly dependent on regulations applied to insurance industry. A slight variation in these regulations imposes risks in operation of RNLIC.
• RNLIC distribution channels and intermediaries are mostly third-party which might be affecting adversely for company’s business operations.
• If the investment products under preform or the return generated is less than as estimated, the investors return will be directly affected.
• With innovation, technological application, competitions is high making insurance as a red ocean for business.
• In historic financial records, it is noted that cash flows are negative in certain year which might impact the future business.
• As it is the first AMC to get listed, no competitors’ analysis for risk can be done in this case making it difficult for financial ratio calculations.

Is there Worth to Invest in Reliance Nippon Life Insurance IPO

This IPO seems to seek a high premium for its shares on offer. At Rs. 252 a share, the company is valued at 36.79 times its FY17 earnings and 8.97 times based on its book value as on June 30, 2017. For a company which is facing a tough competition from the existing as well as new entrants in the asset management business and seeing a consistent decline in its financial health, these valuations are not attractive for either listing gains, or for long term wealth creation.

The company reported profit after tax (PAT) of Rs. 402.76 crore during FY17, as against Rs. 396.43 crore in FY16 and Rs. 354.46 crore in FY15. This translates into a growth of just 1.6% in the last year’s profits and 6.6% CAGR in the last two years’ profits. This growth is not upto the mark if you consider this 2-year period to be a bumper one for the growth in the AUMs of the mutual fund industry as a whole.

Despite of the fact that Reliance AMC is one of the better companies in the ADAG group of companies, I think the company is seeking valuations way higher than what it deserves for the kind of growth it has been able to deliver. Personally we recommend to avoid this IPO at these valuations and wait for it to correction in trading.

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