ICICI Prudential Life Insurance IPO Kicks Off: Here’s What You Need To Know
ICICI Prudential Life IPO opens September 19, closes on September 21
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ICICI Prudential Life Insurance Company Ltd. hits the market on Monday with the biggest initial public offering (IPO) in the last six years. The issue is also the first by an Indian insurer. The company is a joint venture between India’s largest private sector lender ICICI Bank Ltd. and Prudential Corporation Holdings Ltd.
The issue consists of an offer for sale of more than 1.8 crore equity shares of face value of Rs 10 each. ICICI Bank is looking to sell 18.7 percent stake through the issue. The price band for the IPO, which closes on September 21, has been fixed at Rs 300-334 per share.
The insurance company aims to raise close to Rs 6,000 crore through the issue. At the upper end of the price band, the company will command a valuation of Rs 48,000 crore.
Insurance Business In India
ICICI Prudential Life Insurance is the largest private sector life insurer in India – the world’s 10th largest life insurance market, according to the company’s red herring prospectus (RHP).
In India, the size of the life insurance business was pegged at Rs 3.7 lakh crore at the end of 2015-16, with a compounded annual growth rate (CAGR) of 17 percent over the last 15 years. Despite this, life insurance penetration in India is as low as 2.7 percent, according to the RHP.
ICICI Prudential Life’s Revenue Map
The insurer generates over 55 percent of its revenue from Maharashtra, Gujarat, Karnataka, Tamil Nadu and Delhi. It has ICICI Bank, Standard Chartered Bank and Capital Small Finance Bank as its bancassurance partners. From this channel, the company received 56 percent of its business. Four other channels, including agencies, corporate agencies, brokers and direct sales, contributed 44 percent.
A major chunk of revenue comes from unit linked insurance plans (ULIP).
Financial Health
- The networth of the company as of March 31, 2016 was Rs 5,513.6 crore, according to the red herring prospectus.
- The embedded value - the measure of the consolidated value of shareholders’ interest in the life insurance business - stood at Rs 13,939 crore, the prospectus said. At the upper end and the lower end of the price band, the price-to-embedded value is around 3.4 times and 3.1 times respectively.
- At the upper end of the price band, the earning per share (EPS) and price-to-earnings ratio (P/E) for financial year 2015-16 are Rs 11.53 and 29 times, respectively, according to BloombergQuint’s calculations. At the lower end of the price band, the P/E ratio works out to 26 times.
- The company earned premium worth Rs 18,998.7 crore in 2015-16, which grew at a CAGR of 8 percent over the past 5 years. For the first quarter of financial year 2016-17, the premium earned stood at Rs 3,508.8 crore.
- Net profit for financial year 2015-16 stood at Rs 1,652.7 crore which grew at a CAGR of 4.5 percent in the past 5 years. For the first quarter of financial year 2016-17 net profit was Rs 405 crore.
Peer Comparison
ICICI Prudential Life does not have any listed competitor in India. HDFC Standard Life Insurance Company Ltd., while not a listed entity, is the closest private insurance company in terms of premiums earned.
The product mix of ICICI Prudential Life Insurance suggests that the insurer is over dependent on unit linked insurance plans, while its competitors have a more balanced product profile.
ICICI PruLife has a good 13th month ratio of 82.4 percent when compared to HDFC Life but marginally lower 61st month ratio of 55.6 percent. Persistency is the ratio of continuing premium to the premium of all policies issued.
Post the merger of Max Life with HDFC Life, the scenario will change for ICICI Prudential Life and it will no longer be the largest private sector insurance company, data compiled by BloombergQuint shows.
Shareholding Pattern
Chanda Kochhar, the chairperson of ICICI Prudential Life, said at a press meeting recently that ICICI Bank and Prudential Corporation would further divest one percent and six percent stake respectively in the insurance company over the next three years.
Anchor Investor Allocations
The insurer allotted 4,89,62,085 equity shares to 38 anchor investors at Rs 334 per share, according to a stock exchange filing. Morgan Stanley Mauritius Company was allotted 12.7 percent of the total anchor investor portion.
Government of Singapore and Monetary Authority of Singapore were allotted 8.9 percent and 3.4 percent respectively, while Goldman Sachs (Singapore) was allotted 5.7 percent and the Nomura Group was allotted over 7 percent of the anchor investor portion.
Eleven mutual funds were allotted 33.6 percent of the total anchor investor portion. Rival HDFC Standard Life was allotted 2 percent.
Brokerage Verdict
ICICI Prudential Life remains an outperformer in the private life insurance space despite challenging business environment. The untapped opportunity and penetration in life insurance provides ample scope for the company to grow its portfolio at a rapid pace. The IPO is priced at 3.4x FY16 P/EV which is favourable as compared to the valuation of recent insurance deal between HDFC Life and Max Life. Hence, we believe that valuation is reasonable and we have a ‘subscribe’ rating on the issue from a medium-to-long term perspective.Geojit BNP Paribas
The company has enough scope for business growth in the future. We believe the issue is fully priced in, and hence we have a ‘neutral’ rating on the issue.Angel Broking
Considering the likely increased earnings based on current financial year 2016-17, as well as addition to the neworth and increased book value, the pricing could become much more attractive. We are confident that the Insurer will deliver consistent performance and provides an excellent investment opportunity for investors with a long term horizon. Hence, we recommend ‘subscribe’.NVS Wealth Managers
Considering healthy business momentum, rising penetration for insurance sector as well reasonable valuations for the company, we recommend ‘subscribe’.Quant Broking