ICICI Prudential Life Insurance Company Limited (ICICI Pru) which is tapping the capital markets with its offer for sale of 18.13 cr shares in a price band of Rs 300-334 is more than halfway subscribed. The issue had opened on Monday the 19th of September and closes on Wednesday the 21st of September. The company had earlier allotted 4.89 cr shares to 38 anchor investors comprising of 69 entities. The allocation was made at the top end of the price band.
There is a reservation of 10% of the total issue for shareholders of ICICI Bank. The company is in the insurance sector and offers investment and protection products. It is one of the largest private players in the space and has a higher than double digit (11.3%) market share in a business which continues to be dominated by state run LIC with a 50% market share. It has a field force of over 1.21 lac agents and the product is sold by over 4,500 branches of ICICI Bank and Standard Chartered Bank.
The parentage of ICICI Prudential is marquee with ICICI Bank owning 67.6% pre-IPO and Prudential owning 25.87%. The IPO is an offer for sale from ICICI Bank and there holding would reduce by the size of offer.
The company is highly profitable and earned a net profit of Rs 1,653 crs. The designated dividend from the company is 40% but they have been paying much higher and paid a total of 84% dividend for the financial year. The amount higher than the board policy is by way of special dividend.
The area of concern that investors have is multiple of embedded value at which the shares are being offered. Last year end in December 2015 there was an issue to investors including Azim Premji who invested at an embedded value of 2.4 times. Earlier in July August 2016, the merger of HDFC insurance business with Max insurance was done at an effective embedded value of 4.3 times. The situation post liberalisation of the insurance sector has changed dynamics of this business.
The JDY or Jan Dhan Yojna and the subsequent insurance scheme thereafter saw over 3 cr new people being insured. This virtually doubled the base of people who had some protection. With such an under penetrated market it would continue to grow at 30 and 40% for the next few years. It is this growth potential and opportunity which gives the higher multiple to embedded value.
I believe the offering may look expensive but offers scope for growth and appreciation in the medium to long term. This stock is not for the listing gain player or the short term player. Apply if you have conviction in the India story.
At the end of day two, the issue is subscribed 0.52 times with QIB portion 0.59, HNI 0.15, Retail 0.65 and Shareholder 0.48. There were a total of 5.07 lakh applications received. The numbers will be on an upswing as QIB’s, HNI’s and Shareholder categories bidding ends at 4pm while retail bidding continues.
SEBI Disclaimer: – I have applied in the issue.