ICICI Prudential’s ₹6,000-crore IPO opens today, investors bullish

MUMBAI: Monday’s ₹6,000-crore initial public offering of ICICI Prudential Life Insurance, which is the first by an insurance firm in India, is being keenly followed

MUMBAI: Monday’s ₹6,000-crore initial public offering of ICICI Prudential Life Insurance, which is the first by an insurance firm in India, is being keenly followed by investors — retail and institutional alike.

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This is the biggest public issue since Coal India’s ₹15,000 -crore IPO in 2010, and will offer retail investors exposure to pure-play insurance firms for the first time in the country.

On Friday, the company raised ₹1,635 crore from anchor investors, such as Morgan Stanley, Goldman Sachs and Government of Singapore.

Of late, retail investors’ interest in public issues has been rising. Of the 16 public offers between January and August, which raised close to ₹11,000 crore, 15 saw retail portion oversubscribed.

ICICI Prudential was the largest private sector life insurer in India in 2015-16, and could offer investors multi-year growth opportunities, analysts said.

The company has consistently generated the most new business premiums on a retail weighted received premium basis among all private life insurers in India every year since fiscal 2002, according to Crisil.

Its marketshare has increased from 5.9% in 2011-12 to 11.3% in 2015-16. ICICI Prudential’s capital position is also strong with a solvency ratio (size of capital relative to premiums written) of 320% as of June 30, versus the regulatory requirement of 150%.

“We expect the company to deliver a high 20% annual premium equivalent growth in the medium term even as its return on embedded value will remain moderate at around 16%. The strong backbone of ICICI Bank, supported by a strong agency channel (third largest in India), will continue to drive business,” said Nischint Chawathe, analyst at Kotak Institutional Equities.

The company will be soon be overtaken as the largest private life insurance firm by HDFC Life, which stitched a merger with Max Life Insurance, to create an entity worth ₹65,000 crore.

Analysts say the issue is attractively priced compared to the recent merger of HDFC Life and Max Life Insurance.

At the upper end of the price band, ICICI Prudential is valued at ₹47,957 crore, less than what HDFC Life-Max Life merger is worth.

However, in November 2015, ICICI Bank sold 6% stake in the life insurance arm to Temasek and Premji Invest. The firm was then worth just ₹32,500 crore, making the current valuation 48% higher.

Also, a key risk analyst says ICICI Prudential is more levered to capital market movements as 82% of new business premiums come from unit-linked insurance plans (ULIPs).

“ULIPs as a product could be more cyclical in terms of growth and persistency. ICICI Prudential’s new business profit margins are lower than most bankled insurance peers and it will have to sustain high persistency in ULIPs and improve the mix of protection plans,” said Adarsh Parasrampuria of Nomura.