This will provide liquidity to existing shareholders including ICICI Bank and FAL Corporation. NSEBSEICICI bankLoading data…
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ChartsValuation & Peer ComparisonCommunity BuzzPEER COMPANIES ET Intelligence Group: ICICI Lombard General Insurance Company (ILGIC) plans to offer a portion of existing paid-up equity shares worth up to Rs 5,700 crore in the primary market. This will provide liquidity to existing shareholders including ICICI Bank and FAL Corporation. Of the 8.6 crore shares on offer, 43.1 lakh shares are reserved for ICICI Bank shareholders.
Though the company is a market leader in the country’s general insurance sector, a steeply demanded valuation is a major concern for investors. Nevertheless, long-term investors seeking an exposure to the non-life insurance business, may consider the maiden offer in the sector given the company’s consistent track record of growth and dividend payments, and strong management.
Established in 2000, ILGIC is India’s largest private general insurer based on the gross direct premium income (GDPI) of Rs 10,725 crore -about 18% of the country’s total non-life GDPI -in FY17. It has a diversified product portfolio including major segments of fire, home, health, motor, and travel. The company boasts of the fastest claims turnaround among the private sector peers with 94.4% claimed paid within one month in FY17.
India’s non-life insurance sector grew at an annualised rate of 14.5% between FY11 and FY16, the second fastest among Asian countries after China. Still, the market penetration was poor policy premium was 0.8% of GDP in 2016, the lowest among the BRICS countries. This reflects huge growth potential for the sector.
The company’s assets doubled to Rs 48,885.8 crore between FY13 and FY17.During the period, revenue grew at an annualised rate of 24% to Rs 9,836.5 crore and net profit by 16.1% . Its investment book at Rs 16,450 crore as of June 2017 was the largest among the private sector peers. The company has delivered more than 15% return on equity (RoE) since FY15. At 17.2% in FY17, its RoE was higher than the average 14.4% for the private multi-product peers.
VALUATION AND RECOMMENDATION
At the upper end of the price band, ILGIC demands trailing price earnings (PE) multiple of 46.2 and pricebook value (PB) multiple of 8.6.There is no direct listed peer for com parison. Top non-banking finance companies trade at PB of under six.This makes ILGIC’s valuation steep.
The IPO of another group company ICICI Prudential Life Insurance Company , launched last year, was also perceived to have stretched valuation and its shares fell on the listing day .However, it earned over 48% return in a year. What goes in favour of ILGIC is strong presence in the country’s fast growing non-life insurance sector, well managed investment portfolio, and better return ratios. In addition, the company has been paying 30% of net profit as dividend since FY16. These factors may attract long term investors with a horizon of at least three years.