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

The IPO received welcoming carpet reception from QIBs on Day 1 with the category getting subscribed 1.78 times. If the category gets accelerated response on Day 2 as well, Retail and HNI investors are sure to follow the suit aggressively

Valuationwise though is the IPO worth? Here's a perspective...

With a price Band of Rs.1760 to Rs.1766, the PE ratio on the upper band is 41.42 times and there are no listed peers to compare as per RHP. However, if we look for cursory forced peers, Havells sits at PE of 56.83 and V Guard trades at 61.23. Comparatively, Dixon looks relatively humble

The company has shown a good growth in terms of consolidated Revenue 33.8% in the past 5 years and a respectable  growth in terms of Profit after tax.

The proceeds are intended to be used for the expansion which is also calming to ears.

All said and done and also taking into account quasi Euphoria in IPO markets, it may be worthwhile to go for Dixon for Long Term if not as a listing gain earner

The initial public offering (IPO) of state-owned Cochin Shipyard Limited was subscribed 3.16 times on its second day of opening

The IPO is a fresh issue of 22.65 million shares, which at the upper end of the price band will fetch the company over Rs978 crore. There is also an offer for sale of 11.3 million shares. At the upper end of the price band, the government, which is selling 10% stake, will raise over Rs.489 crore

But whether all this makes a good bet to go for it? Let's find out on a simple 3 point criteria

1. Company Business prospects

The company has a strong reputation in the shipbuilding space, particularly in relation to the defence sector. It has been in existence since 1972. In the past it has undertaken repairs of Indian Navy aircraft carriers such as INS Viraat and INS Vikramaditya. It is also building India's first indigenous Aircraft Carrier (IAC) for Indian Navy. It is also one of the few companies with "Miniratna" status

Cochin Shipyard has a credible moat given that it receives preferential orders from the Indian navy and the coast guard. Being a Government of India company it also receives some confidential orders which can not be given to private players

2. Financials

The company's average five year ROE and ROCE were 16.1% and 24.7% respectively. Current ROE and ROCE stand at 16.2% and 23.9% respectively

The company's revenue increased at a CAGR of 5.7% in last five years. However this growth seems impressive, given the poor health of the shipbuilding industry, excess supply, low demand and volatility in crude prices

Moreover, the company is effectively debt free and has cash and cash equivalents of around Rs 2,000 crores against estimated capital expenditures of around Rs 2,000 crores over 3-4 years after adjusting for IPO proceeds

3. Pricing

The company has set a price band of Rs. 424 to Rs.432 per share for the initial share sale. One of the tempting features especially for Retail investors is the special discount of Rs.21 per equity share which will in turn reduce the cost per share Rs.411 per share assuming allotment is made at upper end of price band.

The company is best profit making one in the shipbuilding industry since all of its listed peers have negative earnings and are highly leveraged whereas Cochin Shipyard would have a PE ratio of 18.8 times which is fairly justified

This price is also clearly attractive for listing gains considering already high grey market premium running through

Verdict

Considering that the company ticks most of the boxes, investors may not want to miss this ship!

S Chand and Company IPO is open for subscription between Apr 26 and Apr 28. Here's what these brokerage houses have to say about the IPO:

GEPL Capital : Subscribe

S Chand & Company Ltd (SCHAND) stands to gain from operating leverage. At a P/E of 35xs of FY16 EPS. We believe that SCHAND. demands a discount to its domestic peers. We assign a Subscribe rating to the IPO.

LKP Research : Subscribe

We believe that its 7 decade legacy, leadership in K-12 education content market, strong margin & growth prospects have been captured well at the valuations of ₹ 660-670 per share where the scrip would trade at 39XFY16 earnings. We recommend a SUBSCRIBE on the S Chand IPO for listing gains.

Angel Broking : Subscribe

considering the company’s leadership position in K-12 market, strong brand recall and pan India reach along with higher revenue/PAT growth (revenue/PAT grew at a CAGR of 33%/36% over FY2012-16 v/s 11%/7.5% of Navneet), we believe that SCCL is rightly placed for further growth. Thus, we recommend a SUBSCRIBE on the issue.

Prabhudas Lilladher : Subscribe

considering strong parentage, branded portfolio, professional management, reducing debt profile post IPO, good growth opportunity & limited listed opportunities to play the Publishing segment, recommend ‘subscribe’ with a long term objective.

Hem Securities : Subscribe

At higher end of price band of Rs 660-670 ,co is bringing the issue p/e multiple of around 31. However looking after fundamentals like high growth prospects , strong brand name & leading position of co , we recommend "Subscribe" on issue for long term.

SMC Global Securities Ltd. : Subscribe ( 3 stars i.e. Fair)

The sales seasonality in its K-12 segment materially affects its operating revenue, margins and cash flows from quarter to quarter. Accordingly, as per the management estimates, its operating revenues and margins during the first three Fiscal quarters have typically been lower, compared to the fourth Fiscal quarter. Considering the seasonality of the business, an investor with long term prospect may opt the issue.

SPTULSIAN.com : Avoid

At Rs. 670, company’s market cap will be Rs. 2,325 crore and EV Rs. 2,458 crore. Based on estimated FY17 and FY18 EPS of about Rs. 21 and Rs. 26 respectively (including Chhaya), the PE multiples are 31x and 25x respectively. EV/EBITDA multiples are 14x and 12x for FY17 and FY18 respectively, which are quite rich. On expensive valuations, investors can give this IPO a miss.

DSIJ.in : Avoid

In the long run, we expect the company may give returns of about ~10% to its investors which is not so promising. Looking at margins pressure, lower growth prospects and high valuation, we recommend our investors to avoid subscribing to this IPO.

MONEYCONTROL.com : Avoid

At the upper price band of Rs 670, SCCL seems to be valued at approximately 45x FY17 (projected) earnings, which, in our opinion, is costlier than Navneet Education (trading at 25x FY17 expected earnings), which has a more diversified business model and comparatively better operational/return ratios. We suggest the investors to avoid the issue for the time being and wait for a better re-entry opportunity in the secondary market.

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