ICICI Prudential Life Insurance is ready to hit the market with the biggest initial public offering (IPO) in nearly six years. The insurer, which on Friday allotted Rs 1,635 crore worth of shares to anchor investors, will seek investor participation in 13.23 crore shares starting Monday. Bids can be made for a minimum of 44 shares and in multiples of the same thereafter. There is a limited trading history for insurance companies in India, except for Max Financial Services (MFS). ICICI Prudential had in November 2015 sold 6 per cent of its stake to investors such as Azim Premji and Temasek Holdings for Rs 1,950 crore, valuing the company at Rs 32,500 crore. At the upper end of the price band, the insurer would be valued at Rs 48,000 crore. How would you evaluate the IPO? Here is how various brokerages view the issue:
Nomura India: Valuation at 10-20% discount to HDFC Max The brokerage noted that the company would command a market value of between Rs 43,000 crore and Rs 48,000 crore, which on its FY18 EV forecast fetches a valuation of 2.45-2.73 times, a 20-30 per cent discount to the combined multiple of HDFC Life and Max Life. "Adjusting for excess capital, this price band is a 10-20 per cent EV multiple discount to MFS (merged entity) valuations, and on a new business multiple basis valuation is at par," the brokerage said. Quant Capital: Valuation reasonable, sector outlook upbeat Quant Capital has assigned a 'subscribe' rating to the IPO. This brokerage said ICICI Prudential's healthy business momentum and rising penetration in the insurance sector, besides reasonable valuations are some of the factors behind its rating. "At the upper end of the price band, the insurer is valued at Rs 47,720 crore, quoting at 9.6 times risk-weighted received premium (RWRP) for FY16, which is quite low compared with our estimate of 15 times for ICICI Bank's SOTP valuation. The valuation is also reasonable considering the recent merger of Max Life with HDFC Life has quoted the value for HDFC Life Insurance at Rs 47,000 crore with market share of 7.6 per cent against ICICI Pru Life's share of 11.3 per cent. IIFL Private Weath Management: Strong ROE, firm ratios The insurer has a strong capital position with a solvency ratio of 320.5 per cent at the end of June, compared with regulatory requirement of 150 per cent. In addition, the insurer has reported return on equity (RoE) in excess of 30 per cent for each year since FY12. "The company's persistency ratios have been increasing in recent years and its expense ratio is one of the lowest among the private sector life insurers. I-Pru Life's value of new business (VBN) grew by robust 52.6 per cent in FY16 on account of improvement in persistency ratios and product mix. VNB margin also increased to 8 per cent, which partially led to EV Operating profit increasing by 17 per cent YoY in FY16," IIFL said.
Angel Broking: Scope for growth exists, but issue is priced fully The ability to growth new business premium (APE) and improve the margins on that, is critical factor for valuing an insurance company, Angel Broking said. "ICICI Pru Life has been able to improve its net new business margins from 5.7 per cent of the premium in FY15 to 8 per cent in FY16. The margins are still low compared to others but what gives confidence is the increasing trend," it said. The brokerage, which has a neutral rating on the IPO, said while the company has enough scope for business growth in the future, the issue seemed fully priced in.
NVS Wealth Managers: Claim settlement highest, good opportunity for investors This brokerage noted that ICICI Pru Life's claim-settlement ratio at 96.2 per cent is the highest in the private life insurance space. Max Financial Services and HDFC Standard Life's claim settlement ratio as on March 31 stood at 94 per cent and 90.5 per cent, respectively. The untapped opportunity and penetration in life insurance provides ample scope for the company to grow its portfolio at a rapid pace, NVS Wealth Managers said. Considering the likely increased earnings based on the current financial year 2017 as well as addition to the net worth and increased book value, the pricing could become more attractive. Hence, we are confident that the insurer will deliver consistent performance and provide an excellent investment opportunity for investors with a long term horizon," it said.