icicipru

ICICI Prudential Life Insurance IPO is just heralding the opening of insurance sectors &  is precursor to many more Insurer IPOs in coming months. If Insurance regulator (IrDA) goes ahead with its plan to mandate all companies over  10-years old  to list on stock exchanges,  from the angle of transparency & to enable them to raise capital and open them to public scrutiny,  Though earlier plans of HDFC Life & ICIC Prudential insurance  to come out with an IPO were running neck to neck,  HDFC Life  which was about to float an IPO opted to go for a reverse merger with Max Life and get a listing.

Issue Details :

This is an Offer for Sale being made by ICICI Bank wherein the equity stake of the bank will come down to 55 per cent from the current 68 per cent. ICICI Bank is making  public offering of about 181.34 million shares, which represents about 12.65% of the insurer’s equity share capital.  Out of the proposed public includes 18134,105 equity shares (10%)  of face value are reserved  for shareholders of ICICI Bank while  35 per cent of total offer size will be set aside for retail investors.

Issue Price :    Monday, September 19, 2016 and shall close on Wednesday, September 21, 2016

Price Band :  Rs. 300 – Rs. 334 per Equity Share.

Lead Managers : Bank of America Merrill Lynch, ICICI Securities, CITIC CLSA Securities, Deutsche Equities India Private Ltd, Edelweiss Financial Services, HSBC, IIFL, JM Financial, SBI Capital Markets, UBS About The Company

About the company:

ICICI Prudential Life Insurance is a joint venture between ICICI Bank and Prudential Corporation Holdings. The company began operations in 2000.  While 74% was held by ICICI Bank , remaining 26% was held by  Prudential Plc.  At that point of time the limit for foreign companies to invest in insurance sector was capped at 26%. This was subsequently increased by Parliament. Thereafter ICICI Bank had reduced its stake to 68% by selling a part of the stake to  Premji Invest, a fund set up by Azim Premji, Temasek Holdings Pte (a Singapore state investment company).

ICICI Bank and PCHL (Prudential Corporation Holdings Ltd.)  hold 67.62% and 25.87%, respectively, of the issued and outstanding equity shares capital of our Company ICICI Bank plans to sell part of its stake in the IPO, while Prudential Plc, is no diluting its part.   This is an Offer for Sale being made by ICICI Bank wherein the equity stake of the bank will come down to 55 per cent from the current 67.62 per cent.

ICICI Prudential Life offers a range of life insurance, health insurance and pension products and services to its customers. ICICI Prudential offers the products and services through an extensive multi-channel sales network across India, including through the branches of bank partners, individual agents, corporate agents, employees, offices and its website.

Company has 121,016 individual agents and over 4,500 branches with Bank partners.. It had assets under management of Rs 103,939 crore as on 31 March 2016 and earned gross premium income of Rs 19,164 crore in 2015-16. Its profit after tax was Rs 1,653 crore in 2015-16.

Financials : 

Financial Metrics of Insurance companies vary significantly from other companies. Over the next few days, we shall try to decipher some these to the extent possible on this page or related posts  like    http://ipoandmore.com/2016/09/06/icici-prudential-life-insurance-ipo-comparison-with-other-insurers/

SHAREHOLDERS’ ACCOUNT (NON-TECHNICAL ACCOUNT)

Figures in Crore
Particulars March 31, 2016 March 31, 2015
Amounts transferred from Policyholders’ account (Technical account) 1,207.64 1,138.60
Total Income including Income from investments & other income 1,807.21 1,672.11
Profit before Tax Provision for Taxation 1,771.57 1,585.28
Profit after Tax 1,650.46 1,634.29
Diluted earnings per equity share ` 11.51 11.41
FV 10 10
Equity 14.32
Issue price 334
PE Ratio 29.02

Comparison with Peers :   http://ipoandmore.com/2016/09/06/icici-prudential-life-insurance-ipo-comparison-with-other-insurers/

Assessment :

  • As per Crisil Research report, the insurance market in the country grew at a CAGR of 11%, between fiscal 2007 and 2010 . It however saw a decline between fiscal 2010 and fiscal 2014, showing a negative CAGR of 5%, . In fiscal 2016, the market grew at 8.1% . Over the long term, CRISIL expects the insurance market in India to continue to expand and the insurance penetration and insurance density to continue to rise with the continued growth of the Indian economy.
  • Though Insurance market in the country has exhibited considerable volatility in the past with spells of negative growth, Over the long term, it is fair to assume that the market shall grow due to present low insurance penetration and insurance density coupled with continued growth of the Indian economy.
  • The new business premiums of life insurance industry increased by 8.1% in FY2016 in terms of retail weighted received premium (RWRP)
  • ICICI Prudential Life Insurance achieved a market share of 11.3% in FY2016 based on RWRP. The Company’s RWRP grew 8.1% from ` 45.96 billion in FY2015 to ` 49.68 billion in FY2016. Also the last four years, its RWRP has grown at compounded annual rate of 15.2%. The Company continued to retain its market leadership among the private players and achieved market share of 21.9% amongst private players in FY2016. try . The assets under management (AUM) was close to Rs 1 lakh crore in FY16.
  • The insurance venture is regarded as highly valued one among private entities in the segment.
  • ICICI Prudential Life Insurance Company Ltd (ICICI Pru Life) is the largest private life insurer  in the country.
  • The company is very well capitalised and has a  solvency ratio of 320 per cent against the IRDAI mandated norm of 150 per cent,
  • In November 2015, ICICI Bank sold 6 per cent stake in the life insurance venture to an investment company of billionaire Azim Premji and a unit of Singapore government-owned Temasek Holdings for Rs 1,950 crore.  The deal valued the company at Rs 32,500 crore, making it the most valuable private sector insurer at that time. Now company is selling a 12.65% stake for Rs. Approx 6000 Crore which values the company at  Approx  47500 Crore.
  • ICIC Prudential Life Insurance has one of the  best operating efficiency in the industry with its cost to total weighted received premium (RWRP) having declined from 19.2% in FY13 to 14.6% in FY16.
  • The offer price has been fixed at a slightly higher price than earlier expectations. There were reports of of market transactions in ICICI Pru shares with employee selling their quota. at around Rs. 320/-.
  • ICICI Pru was doing brisk business in grey market at  Application form / kostak  price of Rs. 1100/- before price announcement. There has been a sobering effect on these after a bit higher IPO price announcment and these are reported to be in region of Rs. 800/-.  However this has again picked up realizing that even at this price, the IPO may be giving a reasonable exposure to insurance sector.  The GMP  as on 17/09 is about Rs. 22/-
  • ICICI Prudential Life Insurance has a good track of paying dividends since the year 2012. It has also declared  an interim dividend of 1.10 per share and a special dividend 1 per share for the quarter ended June 2016.
  • As per a report by Nomura Financial Advisory and Securities (India) Pvt. Ltd.  ICICI Pru IPO valued at a 10-20% discount to the HDFC-Max combine. Nomura Securities puts the insurer’s embedded value (EV) for fiscal year 2018 at Rs17,520 crore and the IPO price would be a multiple of 2.5-2.7 times estimated FY18 EV. However the brokerage also feels that ICICI Prudential has the highest proportion of revenue coming from unit-linked insurance plans (Ulips) which  account for 82% of its new business premium and hence has low margins & lower valuations. ICICI Pru now  aims to change this focus resulting in better margins.
  • Insurance Amendment Act, 2015 provides for enhancement of the Foreign Investment Cap in an Indian Insurance Company from 26% to  Limit of 49%. While Prudential holds a 26% stake in ICICI Prudential Life Insurance and many FII have participated aggressively  as Anchor investors, the remaining gap is likely to provide fillip to the scrip if FIIs decide to enhance their exposure to the permitted level.
  • With many small players in insurance sector, the insurance could see some consolidation going forward and like HDFC Life- Max deal, ICICI Prudential Life Insurance may also go for acquisitions and merger which could enhance its valuations at that pint of time
  • Despite a bit stiff pricing, there are many positives in ICICI Prudential Life Insurance IPO ranging from leadership in its segment, consistent track record, strong brand name   and low insurance penetration in the country. (See caution)
  • Even as the stock has been priced a tad higher than earlier expectations, I intend to apply in this IPO both in retail investor category as well as under ICICI Bank shareholder quota.(Please see Caution)

CAUTION & Important Comments:  As stock markets turned cautious on Day 2 of the IPO ahead of the big event tomorrow, the grey market buyers at GMP / Kostak seems to have vanished. The issue is said to have gathered about 5 lakh applications from retail today at the end of Day 2 & subscription levels are about . 65 x for retail, .48 x for shareholders  & .52X overall which appear to be on the lower side. There is little doubt that the IPO has been priced Rs. 10-20  more by management to extract mileage from market conditions and also influenced by high valuation of HDFC Life- Max deal and this poses a risk to those looking purely for listing gains.  A good amount of interest should come from QIBs tomorrow towards the end & hopefully HNI’s too. While bidding for IPO at brokers could well extend upto midnight seeing the Issue size, ICICI shareholders bidding could close by 4 p.m. The Lead managers should  have learnt a lesson from Yes bank fiasco.  In place of keeping a lower rate, they reacted instead by keeping a wide price band (300-334). Possibility of issue not sailing through looks less but any such fear could rattle the investors and market as well. My own opinion is that barring any major loss of faith or external development tomorrow, the IPO should sail through but the subscriptions levels if not high enough will impact its listing price.

Standard disclaimer:  I am not a SEBI registered analyst. I may have vested interest in every stock I discuss. Please do your own due diligence as stock market investments have high degree of inherent risk. 

(To be updated further)

 

 

 

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