ICICI Pru raises Rs 1,635 cr from anchor investors

Highest in the anchor category; Morgan Stanley, Govt of Singapore, Goldman among allottees

ICICI Prudential Life Insurance Corporation, the country’s largest private insurer, raised Rs 1,635 crore from anchor investors ahead of its Initial Public Offer (IPO) of equity, which opens on Monday.

The insurer allotted 48.9 million shares at Rs 334 each to several investors. These included sovereign wealth funds, pension funds and some mutual funds (MFs). The amount raised is the highest ever in the anchor category.

The anchor allotment should be a boost to the IPO, fifth-largest IPO in the domestic market. It is is the first-ever IPO by an insurance company in the Indian markets and biggest IP in six years.

Morgan Stanley was made the highest allotment of 6.2 million shares, followed the government of Singapore (4.3 million). Nomura and Goldman were among the others made a substantial allotment in the anchor category. L&T MF, Birla Sun Life MF, Edelweiss MF and Sundaram MF were among the domestic mutual funds which were allotted shares.

Experts say investors are looking at this IPO as a play on domestic financial savings, expected to increase rapidly.

Anchor investor allotment is made at the discretion of the investment bankers and the issuers. This IPO is being managed by CLSA, Deutsche Equities, Edelweiss Financial, HSBC Securities, IIFL, JM Financial, SBI Caps and UBS.

Another Rs 1,400 crore will be available for Qualified Institutional Buyers (QIBs) in the IPO.

Under the latest rules, up to 60 per cent (against 30 per cent earlier) of shares in the QIB quota can be allotted to anchor investors. Typically, half the IPO is reserved for QIBs and the remaining half is for non-institutional investors, meaning small investors (35 per cent) and wealthy ones (15 per cent).

Anchor investors have to observe a 30-day lock-in from the allotment. Investors who buy shares in the IPO are allowed to sell immediately on listing, which happens seven days after the IPO closes.

“ICICI Prudential Life is one of the most levered plays on the increase in financial savings,” says Kotak Institutional Equities, in a note. The brokerage believes the insurer could deliver 20 per cent growth in annualised premium equivalent in the medium term.

Nomura says the IPO is priced at a little over 10 per cent discount to the enterprise value multiple of HDFC Life's and Max Life’s combined valuation.

Previously, InterGlobe Aviation, operator of the country’s biggest airline, IndiGo, had the record for highest mobilisation from anchor investors. It raised Rs 857 crore from anchor investors for its Rs 3,025-crore IPO in October last year. And, earlier this year, Equitas Holdings had allotted around Rs 650 crore to anchor investors for its Rs 2,176-crore IPO.

BROKERS' TAKE ON THE IPO

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 per cent discount to the multiple of HDFC+ Max Life combined. Excluding excess capital (solvency at 200 per cent), ICICI Pru Life’s EV multiple is 2.9-3.2 times Mar-18 EV. This implies a 10-20% discount to the EV multiple for HDFC + Max combined.

Kotak Institutional Equities

ICICI Prudential Life is one of the most levered plays on the increase in financial savings. We expect the company to deliver high (20 per cent) APE (annualised premium equivalent) growth in the medium-term even as its return on EV will likely remain moderate at about 16 per cent. 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.

Anand Rathi

The IPO offers a good investment opportunity in a sector that is opening up for retail participation. Along with the growth prospects of the life insurance industry in India, ICICI Pru's strong brand, leadership among the private life insurance players, and cost efficiency make the issue attractive even though it demands premium valuation.

Quant

The 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 per cent against ICICI Prudential Life’s share of 11.3 per cent. Considering healthy business momentum, rising penetration for insurance sector as well reasonable valuations for the company, we recommend ‘subscribe’