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Sep 18, 2017 05:11 PM IST | Source: Moneycontrol.com

ICICI Lombard IPO subscribed 97% on Day 2: Here's what brokerages are saying about the issue

Leading brokerage houses highlight the expensive valuations of the issue, but believe that under-penetration of insurance, focus on profitability, along with growth potential of the sector make it a long term investment option.

 
 
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The Rs 5,700-crore public issue ICICI Lombard General Insurance Company has been subscribed 97 percent on second day.

The IPO has received bids for 6 crore equity shares against issue size of 6.16 crore shares (excluding anchor investors' portion). The issue is set to close on September 19.

The subsidiary of ICICI Bank offered up to 8,62,47,187 equity shares for subscription on September 15.

Its promoter entities — ICICI Bank and Farifax Holdings — will dilute their holdings by close to 19 percent through a public offer.

DSP Merrill Lynch Limited, ICICI Securities and IIFL Holdings are global co-ordinators and book running lead managers to the issue. Meanwhile, CLSA India Private Limited, Edelweiss Financial Services and JM Financial Institutional Securities are book running lead managers to the issue.

The merchant bankers have fixed a price-band in the range of Rs 651-661 for the issue.

Leading brokerage houses highlight the expensive valuations of the issue, but believe that under-penetration of insurance, focus on profitability, along with growth potential of the sector make it a long term investment option.

Brokerage: Centrum Broking

Centrum Broking observed that at the higher end of the price band of Rs 661, the issue is priced at 8.1 times FY17 book value and 46.8 times FY17 earnings per share (EPS).

“At this valuation the issue seems expensive considering a RoE of 17.2 percent for FY17, loss ratio of 80.6 percent and combined ratio of 104 percent compared to average of private peers as per RHP — 20.4 percent RoE, 76.3 percent loss ratio and 101.7 percent combined ratio,” the brokerage house said in its report.

Having said that, the brokerage said, it could attract adequate investor interest being the first insurance listing along with other factors such as under-penetration in the sector and its healthy financials.

If so, the stock may list at premium to the issue price. If that does not happen, than investors should be ready to expect returns only in the long term.

Brokerage: SMC Research

SMC Research too highlighted the company being the first insurer to list. Additionally, a strong distribution channel, it said, enables the company to expand its customer base.

“The company’s financial performance has been strong and it is the first player to go public from the insurance segment. Considering all these aspects, investment for long term may be considered,” the brokerage house said in a report.

Brokerage: Way2Wealth

The brokerage house said that the sector can witness high growth as awareness of risk cover as well as shift of savings to financial assets accelerates over the next decade.

“Being a leader in the space & having superior operating metrics we believe the company is well poised to take up the opportunity of increase in penetration over the next few years,” it said in its report. It asks investors with a long term view to subscribe to the issue.

Motilal Oswal

Motilal Oswal is positive on the issue as the sector provides opportunities for growth on the back of significantly lower penetration and lower insurance density compared to other developed and emerging economies.

Further the company has delivered strong ROEs in excess of 16 percent consistently for last 5 years, it added. While the valuation is on the higher side, the brokerage house said that the premium is justified due to growth potentials of non-life segment, leadership positioning and strong solvency margins. It recommends subscribing with a long term view.

KR Choksey

KR Choksey said that the insurer maintained its aggressive stance on leveraging technology in internal and external processes to enhance productivity of its employees. As a result of this, the brokerage said, the company has been able to increase overall business efficiency.

Further, it highlighted that the company is valued at Rs 30,000 crore, which translates into a P/E ratio of 48x FY17 earnings and 2.7x FY17 GWP.

Based on the multiples, it said, that the issue is expensive against some of the multiples at which deals have taken place recently. But, the growth potential and focus on improving profitability makes it positive on the issue and recommends subscribing for the long term.

Brokerage: Nirmal Bang

The brokerage house said that though there is no comparable listed peer of ICICI Lombard but as compared to other consumer facing NBFC peer like Bajaj Finance, Gruh Finance, ICICI prudential and PNB Housing finance the share is offered at lower valuation.

“We recommend to Subscribe with long term perspective considering the market opportunity, number one positioning and strong financial of company,” the report added.

Ajcon Global

The brokerage house too recommends subscribing the issue based on certain parameters:

a) India being the 4th largest non – life insurance market in Asia

b) Leadership position in non life insurance industry

c) Largest private – sector non life insurer

d) Comprehensive product portfolio

e) Consistently ranked number one among private non life insurance companies,

f) Company growing faster than the industry,

g) Strong capital position with a solvency ratio of 2.13x as on June 30, 2017 (IRDA prescribed solvency ratio – 1.5x

h) Consistent investment performance

i) Strong investment leverage

j) Loss and combined ratios improving

k) Paying healthy dividends to shareholders

l) Strong parentage

m) Consistently delivered profit since FY13 and healthy ROE above 15 percent enjoyed since FY15

n) Superb response from anchor investors like Nomura Trust, Kuwait Investment Authority, Blackrock, Societe General, Citigroup, BNP Paribas etc.
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