The Rs 5,700 crore IPO of ICICI Lombard which opens today marks the first by a non-life insurer in history. With this IPO, four other mega insurers are slated to hit the market this year including HDFC Standard Life Insurance, GIC of India,SBI Life Insurance Company and New India Assurance. The listing of these insurers will open a new avenue for all the investors looking to take exposure to the growing industry. Experts are predicting that the mutual fund allocation to the sector will undergo a paradigm shift. S Ramesh from Kotak Investment Banking says told CNBC TV18 recently, “Insurance is a space where we have not seen much IPOs or any form of paper come to the market. Mutual funds are actually wondering where to deploy this collection. And it will be a great fit to what they want to do.” The expert predicts that 5-7% of the total allocation to financial services will now move to the Insurance space.
Here are the key things to watch out for in the IPO-
The company looks to raise about Rs 5,700 crores at the higher end of the price band which is set between Rs 651-661 per share. The IPO will launch today and close on September 19. The initial share sale will see stakeholders ICICI Bank Ltd and Fairfax Financial Holdings Ltd sell around 86.24 million shares. ICICI Bank looks to sell 31.76 million shares to get Rs 2,099.40 crore while Fairfax will look to raise Rs 3,601.50 crore by selling 54.48 million shares. The ICICI Lombard IPO will see a dilution of over 19% stake—7.15% of ICICI Bank and 12.27% of Fairfax.
About the company
ICICI Lombard GIC was founded in 2001 and is one of the leading private sector general insurance companies in India with a Gross Written Premium (GWP) of Rs 109.60 billion for the year ended March 31, 2017. It offers a range of insurance products such as motor, health, crop/weather, fire, personal accident, marine, engineering and liability insurance, through multiple distribution channels.
ICICI group earlier insurance IPOs
ICICI Lombard General Insurance is the second insurance company from the ICICI group to go in for an IPO. Last year, ICICI Prudential Life Insurance raised Rs 6,000 crore in an initial share sale, the first public offering by an Indian life insurance company.
Most of the brokerages including Motilal Oswal, KR Choksey, Angel Broking and Centrum Wealth have a subscribe rating on the issue. Angel Broking said the non-life insurer’s stock may appear to be fairly valued at 8 times its 2016-17 book value, but it has the potential to deliver high double-digit growth for the years to come. Motilal Oswal says the the sector provides opportunities for growth on the back of significantly lower penetration and lower insurance density compared to other developed and emerging economies. KR Choksey says that the issue is expensive compared to the general industry trend, however, has a subscribe rating give the long-term prospects. Centrum Wealth also concurred that the issue is expensive, however, the brokerage firm has a subscribe rating as the non-life insurance segment is underpenetrated in India and the company’s financials are strong.
Chanda Kochhar’s take
In conversation with ET Now, Chanda Kochhar, Chairperson ICICI Lombard GIC said, “I really cannot comment on the returns going forward but if you go by an example, last year we did an IPO of our life insurance company and if you see the track record there so far for those investors the group has delivered a 33% annualised return just in this last year.”