ICICI Pru Life Insurance IPO: Should you invest?

The initial public offer (IPO) of the country’s largest insurer in the private sector, ICICI Prudential Life Insurance Corporation (I-Pru), opens today for subscription. On offer are 18.13 crore equity shares of Rs 10 each via book building route in price band of Rs 300-344/share. 

According to reports, I-Pru had Rs 1.09 trillion worth of Assets under Management (AUM) as of June 30, 2016, making it one of the largest fund managers in India. Ahead of its IPO, it raised Rs 1,635 crore from anchor investors. 

Here is a quick compilation of recommendations from leading brokerages on whether should you subscribe to the offer or not.

NOMURA

ICICI Prudential Life’s IPO price of Rs 300-334 per share implies a valuation of Rs 43,000-48,000 crore. On March-18 enterprise value (EV), this implies a valuation of 2.45-2.73 times which is a 20-30% discount to the multiple of HDFC+ Max Life combined. 

Excluding excess capital (solvency at 200%), ICICI Pru Life’s EV multiple is 2.9-3.2 times March 2018 EV. This implies a 10-20% discount to the EV multiple for HDFC + Max combined. Our price target for ICICI Bank is Rs 285/share. Benchmarking ICICI Pru Life’s valuation to Rs 43,000 - 47,800 crore would imply 4-6% upside to our price target for ICICI Bank.

MOTILAL OSWAL RESEARCH

The company relies heavily on bancassurance and has tied up with ICICI Bank, Standard Chartered Bank and Capital Small Finance Bank for product distribution. Bancassurance accounted for over 58% of retail APE in FY16. We believe termination of one or more of these partnerships poses significant threats to the business over the medium-term.

That apart, over 80% of retail Annual premium equivalent (APE) for FY16 was in ULIPs. This makes the company prone to the cyclicality of the stock markets, as retail investors generally purchase ULIPs during stock market booms and vice-versa. This could impact new business premiums as well as margins. Additionally, the company has a low share of non-participating business, which is a high-margin business. 
 

KOTAK INSTITUTIONAL RESEARCH

We expect the company to deliver high (20%) APE (annualised premium equivalent) growth in the medium-term even as its return on EV will likely remain moderate at about 16%. Shift to higher margin (protection) business and higher investment variance can provide upside though constrained by high overruns and limited scope of upside on the persistency experience.

ANGEL BROKING

ICICI Prudential had sold a 6% stake in Nov 2015, for Rs 1,950 crore, valuing the company at Rs 32,500 crore. The IPO, however, values the company at Rs 47,870 crore at the upper price band. While part of the rise in valuation can be due to the fact that the company has improved its persistency rates and the new business margins a lot could be attributed to expected future growth.

At the price of band of Rs 300-334 the issue is offered at 3.1x and 3.4x its reported FY16 enterprise value (EV). While 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.

NVS WEALTH

At the higher band price of Rs 334 per share, the IPO is priced at a PE multiple of 29x which compares very favourably with its peers in the listed (Max Financial P/E-64x) and non-listed (HDFC Standard Life P/E-31x) space. At the price band of Rs 300-334 the price to embedded value (P/EV) is 3.1 to 3.4 and considering the likely increased earnings based on current financial year 2017 as well as addition to the networth and increased Book value, the pricing could become much more attractive. Hence, we are confident that the Insurer will deliver consistent performance and provides an excellent investment opportunity for investors with a long term horizon.

RELIANCE SECURITIES

ICICI Pru Life has delivered strong growth in total premium and new business premium in last 3 years with healthy ROE in excess of 30%. It is focusing on increasing shareholders return through sustained growth in value of new business. At higher price band of Rs 334, the issue is priced at 3.4x price to embedded value which, in our view, is reasonable compared to recent deal of HDFC Standard Life & Max Life. 

We expect ICICI Pru Life to deliver strong performance, going forward on the backdrop of lower insurance penetration in India. We recommend SUBSCRIBE as it in our view, the Issue provides healthy investment opportunity for the long-term investors.
 

QUANT RESEARCH

We continue to believe that ICICI bank, promoter of the company, being saddled with large delinquencies and elevated credit costs is forced to dilute its holding in the company. The IPO valuation is also reasonable considering 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% against ICICI Prudential Life’s share of 11.3%. Considering healthy business momentum, rising penetration for insurance sector as well reasonable valuations for the company, we recommend ‘subscribe’. Significant deterioration in return ratios and a material slowdown in business growth would be the key risks to our call.