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Why Prabhudas Lilladher has subscribe rating for ICICI Prudential Life IPO

ICICI Prudential Life's Rs 6,000 crore initial public offering (IPO) that opened on Monday was subscribed by 11 per cent till 2.30 pm.

By: | Updated: September 19, 2016 5:23 PM
ICICI Prudential Life IPO ICICI Prudential Life’s Rs 6,000 crore initial public offering (IPO) that opened on Monday was subscribed by 11 per cent till 2.30 pm. (Reuters)

ICICI Prudential Life Insurance’s Rs 6,000 crore initial public offering (IPO) that opened on Monday was subscribed by 11 per cent till 2.30 pm. The IPO with price band of Rs 330-334 per equity shares has received bids for 14,572448 shares against 13,23,78,973 offered by the company during the same time. This is the first IPO by an insurance company to hit markets. The issue will close on September on 21, 2016. The company is a venture between ICICI Bank (with around 68 per cent stake), UK’s Prudential Corporation Holdings(26 per cent stake), Singapore’s Temasek and PremjiInvest.

Most of the brokerage house have a subscribe rating on the ICICI Prudential Life IPO. Analyst Prabhudas Lilladher recommends a ‘Subscribe’ rating to the IPO for long-term gains.

Below are the reasons why Prabhudas Lilladher is bullish on the IPO

– ICICI Prudential Life Insurance is riding on ULIP business (82% mix) which has lower regulatory risk, lower capital requirement and long term operating expense (Opex) benefit, but also has lower margins and is highly dependent on capital market performance. Company from here on is focusing to improve it protection business share which is high margin and moderate opex. Hence, we believe RoEV(return on enterprise value) could improve to 18‐19% in medium term from 15% currently and improve post over‐run margins to around 11% by FY18 from 8% currently. At the upper band of Rs 334, the company would trade at 2.43 times Sep‐18 enterprise value.

-ICICI Prudential Life Insurance’s business growth has improved with CAGR of 27 per cent in last three years but mainly in the ULIP business which passed through a very tough regulatory period from FY11‐FY13. The company is now focusing to improve its mix from protection business (2.5% of APE) which is high margin and drives better persistency which will lower overrun costs and improve new business margins.

-ICICI Prudential Life Insurance has one of the lowest expense ratios among peers as banca & direct (digital) channel sources 57% and 11% of new business on back of strong distribution network of ICICI Bank(+4000 branches) and tie‐up with StanC. Banca & direct sourcing has negligible costs with better persistency (exhibit 12) and the company is using these channels to improve its protection business and is margin accretive.

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