ICICI Prudential Life Insurance-IPO Analysis

About the issue
Subsidiary of ICICI Bank, ICICI Prudential Life Insurance will open its public offer from September 19 – September 21, 2016 with face value of Rs 10 per share. ICICI Bank is selling 12.65 per cent of stake out of 68 per cent stake in this offer for sale. ICICI Bank is selling 181,341,058 equity shares in price band of Rs 300- Rs 334 per share to raise upto Rs 6057 crore.

Purpose of the IPO
The purpose of the offer is to achieve the benefits of listing the equity shares of the company on the stock exchanges, which will enhance its brand name and provide a public market for the equity shares in India.

Industry Outlook
Indian insurance private sector was taking pace since 2000 with four companies to 24 companies till date. In 2016, private sector reached 51.5 per cent of the life insurance sector. Private sector companies have regained significant market share in the last two years; increasing their share from 38 per cent of the overall Indian life insurance sector in FY14 to 52 per cent in FY16.

According to CRISIL's research, the new business premium for Indian life insurance companies is expected to grow at a CAGR of 11-13 per cent over the next five years. Improving economic growth, low insurance penetration, increased financial savings, and a low sum assured to GDP ratio are expected to be the key catalysts for this growth.

Indian life insurance sector is tenth largest life insurance market in the world and the fifth largest in Asia. The total premium in the Indian life insurance sector has grown at a CAGR of 17 per cent over 2001-2016. India is unpenetrated market for insurance sector with a life insurance penetration of 2.7 per cent in 2015, leaving large opportunity for insurance companies.

Young Indian population (90 per cent of population will be under 60 years by 2020), rapid urbanisation and rising financial savings (financial saving has 19 per cent share of life insurance ) are expected to propel the growth in Indian life insurance sector.

Company Outlook
ICICI Prudential Life Insurance will become India’s first insurance company to hit capital markets. It is the biggest IPO since Coal India in 2010 in terms of Rupees. It is the largest life insurance company in India by asset under management and total premium in FY16. The company offers wide range of life insurance, health insurance and pension products. Company has 121016 insurance agents and has over 4500 branches with Bank Partners. Rs 1.04 trillion assets under management make it one of the largest fund managers in India. 

The company enjoys strong parentage from ICICI Bank giving it safest cushion of the brand. The company has been able to generate high earnings of over 90 per cent in last three years due to a robust and sustainable business model and multi-channel distribution network. However, fluctuating capital markets, performance of bancassurance partners, changes in market interest rates and false publicity could affect the business of the company. The company enjoys 21.9 per cent market share in India among all other 23 private players. 

Financial Performance
PAT of the company has grown at CAGR of 5 per cent over FY12-16. In FY16, the company reported revenue of Rs 1812 crore, which increases by 8 per cent on a YoY basis. The company has healthy profit margins of above 90 per cent since FY14. Premium income of the company has risen by 25.3 per cent to Rs 18998.7 crore in FY16 on a YoY basis.

Peer Comparison and Valuation
The company does not have any listed peers as of now. The company with EPS of 11.54 with upper band P/E of 28.94x looks attractive. The company has solvency and persistency ratio of 320 per cent and 82 per cent respectively in FY16. The company maintains RoNW above 31 per cent since FY14. Considering good financial numbers, we suggest to subscribe for this IPO.