 "Investment operations, franchisee growth of general insurance company led to good valuations: ICICI Bank")
ICICI Bank says the nine per cent stake sale in its general insurance arm for Rs 1,550 crore to Fairfax Financial Holdings was fairly priced, considering the franchisee and the investment operations of ICICI Lombard.
“This reflects the franchise, growth potential and the way the company has performed over time. It is still a hugely under-penetrated market, with tremendous growth potential,” said N S Kannan, executive director of the bank, in an analyst conference call.
Kannan added: “Even in terms of leadership depth, investment operations and segments of their businesses, they have a very good franchise and a very good leadership, so our feeling is that the valuation is really reflective of all those trends.”
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ICICI Lombard General Insurance achieved break-even in the first half of 2002-03. Its solvency ratio (size of capital, relative to the risks) has been high and was 1.94 as on September 30, from 1.81 in the corresponding period last year (in India, insurers are required to maintain a minimum of 1.5). The book value per share rose to Rs 67.19 in the September quarter, from Rs 57.49 in the same quarter a year before. At a time when premium growth is under pressure in the segment, with slower automobile sales and fewer projects to insure, it had 23 per cent growth in gross direct premium.
Also, the combined ratio (sum of incurred losses and operating expenses, as a percentage of earned premium) for the first half of this financial year was 107 per cent, similar to the same period last year.
The management added the transaction was at the market price and the agreements did not have any specified value upfront or discount or a particular valuation.
ICICI Lombard is the largest private sector general insurance company. The net earned premium was Rs 1,220 crore for the September quarter.
Senior officials said it wasn't a surprise that the company's valuation had been placed in excess of Rs 17,000 crore, given their accounts.
During its results announcement, ICICI had said the Prem Watsa-founded Fairfax would raise its stake in ICICI Lombard by nine per cent, for Rs 1,550 crore. The deal is expected to be closed by March 2016. Fairfax’s stake in the firm would rise to 35 per cent; the rest is with the promoter, ICICI Bank. The deal values the general insurance firm at Rs 17,225 crore.
Pre-tax gains from the stake sale will be around Rs 1,500 crore. This, the bank said, would go as a profit in the bottom line; later, the board will decide on how to utilise it. In the July-September quarter, the bank’s net profit was Rs 3,030 crore, with a 25 per cent rise in retail (individual) loans.
Kannan added: “Of course, deployment of capital is a separate matter. Given the operating environment, clearly, we want to put more capital on the retail side in the near term.”
