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Friday, September 15, 2017


Brief company profile

ICICI Lombard General Insurance Company Limited is one of the leading private sector general insurance companies in India. It is engaged in general insurance, reinsurance, insurance claims management and investment management. ICICI bank had 64% stake in the venture while Fairfax had 35% in the joint venture. ICICI Lombard General Insurance is the largest private sector general insurance company in India. 

The company markets assurance products including Car Insurance, Health Insurance, International Travel Insurance, Overseas Student Travel Insurance, Two Wheeler Insurance, Home Insurance and Weather insurance. ICICI Lombard has 249 branches spread across the nation


Company and Industry propsects

India's non-life insurance sector grew at an annualised rate of 14.5% between FY11 and FY16, the second fastest among Asian countries. Despite this, the market penetration was poor ­with policy premium was 0.8% of GDP in 2016. 

The company being the market leader in the industry, has huge potential in terms of growth in long run if efficiently expanded.

The company has delivered a strong growth in GDPI and has been successfully maintaining its leadership position amongst the private sector non-life insurers through various cycles of industry evolution


Financials and Valuation

The company's Gross Written Premium (GWP) was Rs.109.60 billion in fiscal 2017. The company maintained its market leadership in the private sector with an overall market share of 8.4%. It witnessed an increase in policy volumes by 12.21% from 15.80 million in fiscal 2016 to 17.73 million in fiscal 2017.

ICICI General’s profit before tax increased from Rs 7.08 billion in fiscal 2016 to Rs 9.10 billion in fiscal 2017. ICICI General’s profit after tax increased from Rs.5.07 billion in fiscal 2016 to Rs.7.02 billion in fiscal 2017

The company has impressive track with ROE with the same being in excess of 17 percent
While the figures are impressive in terms of performance, yet it would be worthwhile to check what kind of pricing is the company demanding. At the upper end of price band, the company is demanding a price of 46.5 times the earnings per share as on Mar 2017. There is no listed comparable peer for the company

It is also pertinent to note that Fairfax Financial Holdings sold 12.2 per cent of its stake in the company to certain private equity firms in the month of May 2017 for Rs 2,470 crore, thereby valuing the firm to around Rs. 20,000 crore. At a higher price band of Rs.661, the IPO is demanding a market cap of Rs 30,000 crore which again implies steep valuations


Synopsis

While the company prospects appear promising considering the penetration and industry potential, the price at which the company is offering shares is clearly steep. The company is demanding a PE of 46.5 times.

With no comparable listed peer, price benchmarking becomes highly blurred. The only far-away comparable turns out to be its own group company (ICICI Prudential Life) which is trading at around 36 times its EPS.

Taking into view the market leading position of the company, the immense potential of the sector and strong trend of elevated ROE, the IPO may turn out to be a good long term bet. And while considering the high liquidity environment prevalent currently, decent listing gain also appears comfortably plausible. However, investors may need to be ready with necessary patience levels and loyalty towards the stock in case things turn turbulent in the short run

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