Monday, September 11, 2017


About the Issue
The much-awaited IPO of ICICI Lombard General Insurance Company is coming up from September 15-19, 2017. The issue size consists of sale of 8,62,47,187 equity shares with face value of Rs 10 aggregating up to Rs 5,700 crore. The price band ranges between Rs 651-661 per equity share. The minimum lot size consists of 22 shares and in multiples thereon. Post allotment, the company will get listed on both BSE and NSE.

Purpose of the issue
- To achieve the benefits of listing the equity shares of the company on the stock exchanges
- Carry out the sale of 8,62,47,187 equity shares by the selling shareholders. The company will not receive any proceeds from the offer for sale.

Company Background
ICICI Bank Ltd., India’s largest private-sector bank and Fairfax Financial Holdings Ltd., a Canada-based holding company, jointly started this insurance business under the name of ICICI Lombard General Insurance Company Ltd. It commenced its operations in 2002. The company offers a comprehensive and well-diversified range of products, including motor, health, crop/weather, fire, personal accident, marine, engineering and liability insurance, through multiple distribution channels.

In FY17, the company issued approximately 17.7 million policies and its gross direct premium income was Rs 107.25 billion, translating into a market share, on a gross direct premium income basis, of 8.4% among all non-life insurers in India and 18% among private-sector non-life insurers in India. For the quarter ended June 30, 2017, it issued approximately 5.2 million policies and the gross direct premium income was Rs 33.21 billion, translating into a market share, on a gross direct premium income basis, among all non-life insurers in India of 10% and 20.2% among private-sector non-life insurers in India. The claim ratio of the company currently stands at 80 per cent. The company’s key distribution channels are direct sales, individual agents, bank partners, other corporate agents, brokers, and online, through which it serves the individual, corporate and government customers. The company is present in 618 out of 716 districts across India.

The company’s investment policy is designed with the objective of capital preservation and achieving superior total returns within identified risk parameters. It is also focusing on investments in technology and innovation, which is improving its efficiency and increasing its access and reach towards customers.

Industry Outlook
The Indian non-life insurance sector offers different products such as motor, health, crop, fire, marine, liability, travel, aviation and home insurance aimed at meeting different protection needs of retail customers, government as well as corporate customers. The Indian non-life insurance sector has been regulated by the Insurance Regulatory and Development Authority of India (IRDAI). The IRDAI regulates the insurance sector in all states in India and any regulatory changes or product approvals are enforced uniformly across the country.

Indian non-life insurance sector grew at a CAGR of 17.4% between FY2001-17. India was also amongst the fastest growing non-life insurance markets over 2011-16, growing at 14.5%. Despite its size and growth profile, India continues to be an under-penetrated market with a non-life insurance penetration of 0.77% in 2016, as compared with global average of 2.8% of the gross domestic product. As of March 31, 2017, there were a total of 30 companies in the Indian non-life insurance sector, which can be classified as multi-product insurers and single-product insurers. According to CRISIL Research, GDPI for non-life insurers are projected to grow at 15-20% CAGR over fiscal 2017 and fiscal 2022. Strong macroeconomic backdrop, coupled with India’s large working population, rising affluence, rapid urbanisation and rising awareness of risk, would continue to propel the growth of the non-life insurance industry in India.

Financial Performance

The company’s revenue has grown at a CAGR of 25% over last five years. Its profits have grown at a CAGR of 65% over last five years.

Non-life insurance products – Performance & Outlook
The company’s various product segments have shown growth as compared to industry growth, which is as follows –

As the new vehicles will have to be mandatorily insured, strong growth in third party motor insurance premiums is expected and thus the company will have good scope to grow in motor insurance. The Government of India is making various schemes, wherein maximum individuals can insure their health. The company has many opportunities in this segment to reach at par with the industry. The government is encouraging farmers to take up crop insurance, which could be an alternative to loan waiver. Due to this, escalation is seen in penetration of crop insurance. Travel and aviation insurance, included in others, too has a good scope to grow in the upcoming years.

On the upper price band of Rs 661 with EPS of Rs 14.32 for FY17, its P/E works out at 46.1x. There were no companies in the insurance industry which got listed on stock exchange. ICICI Prudential Life Insurance Company was the first life insurance company that got listed on BSE & NSE recently. As on March 31, 2017 ICICI Prudential’s P/E was 32.6x. ICICI Lombard General Insurance Company would be the first non-life insurance company to go public. As against ICICI Prudential’s P/E, ICICI Lombard’s issue price seems to be slightly over-priced.

Our View
Several insurance companies, including state-owned ones, are queuing up to launch IPOs, which include companies like SBI Life Insurance Co. Ltd, HDFC Standard Life Insurance Co. Ltd, General Insurance Corp. of India and New India Assurance Co. Ltd. The market of insurance industry is large and is expected to grow at a fast pace. All the players in this industry would have opportunities to grow further. The company’s financial performance has been strong and being the first player to go public, it can have an advantage over others. The strong distribution channel enables the company to expand its customer base. Considering these factors, investors can subscribe to the IPO to reap long-term benefits.

*40 or lower – Avoid Investment, 41 to 45 – Risky, 46 to 50 – Invest with limited exposure, 51 to 55 – Investment recommended, 56 & above – Excellent Investment.
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