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ICICI Prudential Life Insurance IPO: Weighing The Pros And Cons

The IPO of ICICI Prudential Life Insurance saw a 16 percent subscription on the first day.



People sit in the lobby of the Indraprastha Apollo Hospitals facility, operated by Apollo Hospitals Enterprise Ltd. (Prashanth Vishwanathan/Bloomberg)
People sit in the lobby of the Indraprastha Apollo Hospitals facility, operated by Apollo Hospitals Enterprise Ltd. (Prashanth Vishwanathan/Bloomberg)

The initial public offering of ICICI Prudential Life Insurance Company Ltd. opened on Monday and saw a subscription of 16 percent of the issue size on the first day. The issue, which closes on September 21, is the first from an insurance company and also the largest IPO to hit the markets in the last six years. The company is offering shares in a price band of Rs 300-334 per share as part of the issue.

The insurance industry has had a patchy track record in India. The private insurance industry in India has delivered overall returns far below the cost of capital for more than a decade, according to a report released by McKinsey & Co. in January.

“The industry’s negative returns are no surprise, since most Indian private life insurers have chased volume by building large sales forces with significant fixed cost infrastructure and who focus on selling low-margin ULIPs,” said the McKinsey report.

In the case of ICICI Prudential Life Insurance, too, ULIPs or unit-linked insurance plans form nearly 82 percent of the portfolio.

Does this mean that investors should give the IPO a pass?

According to Alpesh Mehta, deputy head of research at Motilal Oswal, any investor looking to invest in an insurance IPO should see it as a long-term play on the low levels of penetration of insurance products in the Indian market. They should also be aware of the potential for volatility as the ULIP business may be impacted by the ups and downs of the capital markets. He shares his views on the sector and ICICI Prudential Life Insurance in this interview.