Graphic by Santosh Sharma/Mint

Life insurance stocks have been a bright spot in an otherwise lacklustre movement in financial shares. All three listed insurance companies have returned handsome gains to investors over the last six months and have outperformed the Nifty Financial Services index.

Therefore, the timing couldn’t have been better for State Bank of India (SBI) to offload stake in its insurance arm.

On Thursday, India’s largest lender offered for sale 4.5% of its stake in SBI Life Insurance Co. Ltd at a floor price of 770 per share. The bank hopes to garner 3,465 crore and institutional demand showed it can easily mop up the amount. Institutional subscription amounted to about 2.7 times the shares on offer to them.

The proceeds will give SBI capital to grow. But the primary motive behind the offer for sale is to abide by the rule of retaining a minimum public shareholding of 25%.

Will investors find it rewarding to put money in SBI Life Insurance Co.? The insurance company gives many reasons in its favour.

SBI Life Insurance Co.’s business growth has been fairly impressive compared with its peers.

For the June quarter, the insurer reported a net profit of 372 crore and annualized premium equivalent growth of 41%. And much of the incremental sales have been in margin-friendly protection products.

In August, the insurer reported new business premium growth of 26%, which was lower only to HDFC Life Insurance Co. Ltd’s among the top five insurers.

But SBI Life Insurance Co.’s strength lies in its access to a vast network of branches of its parent through which it can sell its wares. Notwithstanding this, the insurer has also tied up with other banks to sell its policies.

But the decision to invest is also governed by valuations. Despite the 33% rise in the stock so far in 2019, SBI Life Insurance Co. trades at a modest multiple of about 3.3 times its estimated embedded value for FY20. Analysts at Jefferies India Pvt. Ltd estimate the insurer’s embedded value to grow by 16% to 26,000 crore in FY20. In comparison, HDFC Life Insurance Co. trades at a multiple of over 4.5 times its estimated embedded value.

“It is a game of both growth and valuation. At these levels, it is a good valuation for SBI Life and we have been bullish on the stock for quite sometime now,” said Neeraj Toshniwal, analyst at Emkay Global Financial Services Ltd.

SBI Life Insurance Co.’s stock slipped over 1% on Thursday adjusting to the offer-for-sale supply. Analysts believe that further upside the stock now hinges on the sustainability of its double digit growth metrics in the coming quarters.