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ICICI Prudential Life Insurance Co. Ltd. - Pure play on life insurance - Geojit BNP Paribas

Posted On: 2016-09-18 20:02:47

ICICI Prudential Life Insurance Co. Ltd. (ICICI Pru Life) is India's largest private Life Insurer by total premium and assets under management as on FY16, with an overall market share of 11.3%. The company has a network of 521 offices with 10,663 employees and 1,21,016 advisors across India as of FY16. ICICI Pru Life's total premium and net profit has grown at a CAGR of 8% and 5% in last 4 years, respectively. However, the company has consistently generated ROE in excess of 30% in last 4 years. Besides, the company's claim-settlement ratio was 96.2% for FY16 which was the highest in the private life insurance space, followed by Max Life (94%) and HDFC Life (91%). The company has one of the lowest expense ratio in the industry and it has further decreased to 14.6% in FY16 from 18.8% in FY14 on the back of improved operating efficiency.

ICICI Pru Life has a strong capital position with a solvency ratio of 320.0% as of FY16 as compared to the regulatory requirement of 150.0%. ICICI Pru Life remains outperformer in private life insurance space despite challenging business environment. The untapped opportunity and penetration in life insurance provides ample scope for the company to grow its portfolio at a rapid pace. ICICI Pru Life had an embedded value (EV) of Rs 139.4 bn as of FY16 with RoEV of 15.3%. (EV is a common valuation measure in the insurance industry which measures potential future profits from existing business.)

At the upper price band of Rs334 per share, the IPO is priced at 3.4x FY16 P/EV which is favourable as compared to the valuation of recent insurance deal between HDFC Life and Max Life. The transaction valued HDFC Life at 4.5x FY16 P/EV and Max Life at 3.7x. Hence, we believe that valuation is reasonable and we recommend 'SUBSCRIBE' to the issue, with a medium-to-long term perspective.

Purpose of IPO

Promoters are diluting their equity stake in the company to the public by way of an OFS. Hence, the entire proceeds from the OFS will be paid to ICICI Bank and the company will not receive any proceeds.

Key Risks..

- Changes in the regulatory environment could materially impact the performance of the company.

- Increasing competition in the Indian insurance industry.

Shares of ICICI BANK LTD. was last trading in BSE at Rs.267.55 as compared to the previous close of Rs. 270.65. The total number of shares traded during the day was 1811766 in over 9935 trades.

The stock hit an intraday high of Rs. 275.6 and intraday low of 266.4. The net turnover during the day was Rs. 489688594.


Source: Equity Bulls

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