ICICI Pru Life IPO – Should you invest in this Mega IPO?

ICICI Pru Life IPO - Should you investICICI Pru Life IPO / ICICI Pru IPO – Should you invest in this Mega IPO?


India’s largest Private Life Insurance company, ICICI Pru Life IPO would open for subscription on 19th September, 2016. ICICI Pru Life Limited, the largest private sector life insurer in India by total premium in fiscal 2016 and assets under management at March 31, 2016. Since this is one of the largest IPO and many large books running lead managers (BLRMs) are participating, it is attracting investors now. What the reasons for you to invest in ICICI Pru Life IPO? Are there any negative factors in ICICI Pru Life IPO? Should you invest in this ICICI Pru Life IPO? Let me review them in this article about ICICI Prudential IPO.

About ICICI Pru Life Limited


ICICI Pru Life Ltd is the largest private sector life insurer in India by total premium in fiscal 2016 and assets under management at March 31, 2016. The company is a joint venture between ICICI Bank Limited, India’s largest private sector bank in terms of total assets with an asset base of Rs 7.2 trillion at March 31, 2016, and Prudential Corporation Holdings Limited, a part of the Prudential Group, an international financial services group with GBP 509 billion of assets under management at December 31, 2015. They were one of the first private sector life insurance companies in India and commenced operations in fiscal 2001. They offer its customers a range of life insurance, health insurance and pension products and services. Every fiscal year since fiscal 2002, they have consistently generated the most new business premiums on a retail weighted received premium basis among all private sector life insurers in India.

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Issue details of ICICI Pru Life IPO


  • IPO opens: 19-Sep-2016
  • IPO closes: 21-Sep-2016
  • Face Value: Rs 10 per share
  • Issue price band: Rs 300 to Rs 334 per share
  • Issue size: Rs 5,000 Crores.
  • Market lot: minimum of 44 shares
  • Minimum investment: Rs 14,696 on lower price band
  • Lead Managers: BofA Merillynch, ICICI Securities, Edelweiss Capital, HSBC Securities, IIFL Holdings, JM Financials, SBI Capital Markets, UBS Securities
  • Listing: BSE / NSE
  • Download ICICI Pru Life IPO Prospectus at this link.

Key highlights of this IPO


  • ICICI Bank owns 68% and it is selling 12.65% stake though this IPO.
  • Britain's Prudential PLC, which owns nearly 26% of the company, is not selling any of its stake in the IPO.
  • Company has 121016 insurance agents and has over 4500 branches with Bank partners.
  • Gross premium income was Rs 191.64 Bn
  • Company have over Rs 1.04 trillion of assets under management, making them one of the largest fund managers in India.

Objects of the ICICI Pru Life Ltd IPO issue


  • To achieve the benefits of listing the Equity Shares of the Company on the Stock Exchanges and
  • To carry out the sale of up to 181,341,058 Equity Shares by the Selling Shareholder. The company would not get any funds from this.
  • Offer related expenses.

Company Financials (reinstated-Consolidated)


  • The company generated revenue of Rs 1,824.46 Crores  for the year ended Mar-12 and Rs 1,812.24 Crores for the year ended Mar-16.  
  • The company posted a profit of Rs 1,385.69 Crores for the year ended Mar-12 and profit of Rs 1,6252.72 Crores for the year ended Mar-16.
  • Its restated-consolidated EPS for FY 2016 is Rs 11.54 and last 3 years average EPS Rs 11.42.

ICICI Pru Life IPO - Financials

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Reasons to invest ICICI Pru Life IPO


  • Generates very high profits of over 91% in last 3 years. However, profits for the insurance company would fluctuate very high as they depend on the claims during the year.
  • Consistent Leadership across Cycles in insurance field.
  • Delivering Superior Customer Value. Many believe in the strong brand value of “ICICI Pru Life”
  • Diversified Multi-channel Distribution Network
  • Robust and Sustainable Business Model

Reasons not to invest in an ICICI Pru Life Ltd IPO


  • While it generated revenue of over Rs 1,812 Crores in FY16, the revenues are still low compared to its revenues in FY12 and FY13. Hence if you compare revenues 5 years back, its revenues are constant and no major improvement.  
  • Its business, financial condition, results of operations and prospects may be materially and adversely affected if Its product mix changes or if they are not able to maintain Its market position or sustain Its growth.
  • Any termination of, or any adverse change to, Its relationships with or performance of Its Bancassurance partners, including with ICICI Bank and Standard Chartered Bank, may have a material adverse effect on Its business, financial condition, results of operations and prospects.
  • Changes in the regulatory environment in which they operate could have a material adverse effect on Its business, financial condition, results of operations and prospects.
  • Its Company and its Directors and Its Subsidiary, one of Its Promoters and certain Group Companies are involved in certain legal and other proceedings.
  • Any adverse effect on the equity markets in India could have a material adverse effect on Its business, financial condition and results of operations.
  • Changes in market interest rates could have a material adverse effect on Its business and profitability Significant deviations from Its assumptions regarding future persistency, coupled with concentrated policy surrenders, could have a material adverse effect on Its business, financial condition, results of operations and prospects.
  • Higher expenses than expected could have a material adverse effect on Its business, financial condition and results of operations.
  • They could be subject to claims by the customers and/or regulators for alleged mis-selling.
  • There are operational risks associated with the insurance industry, which, when released, may have a material adverse effect on Its business, financial condition, results of operations and prospects.
  • Its business may be subject to periodic negative publicity, which could have a material adverse effect on Its business, financial condition, results of operations and prospects.
  • Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 21 onwards.

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Recommendation / Investment strategy – ICICI Pru Life IPO


  • On the upper price band of Rs 334 and on FY16 EPS of Rs 11.54 P/E ratio works out to 28.9x. Similarly, on last 3 years EPS of Rs 11.42, P/E Ratio works out to 29.2x. Means company is asking the upper band of issue price of Rs 334 for a P/E ratio between 28.9x to 29.2x. Its listed peer Max Life Insurance has gone major restructuring in FY16, hence the comparable P/E ratio not available. Hence we cannot say whether the issue price is over priced or under priced for this IPO.
  • Company revenues are stable compared to 4 and 5 years back revenues. It is showing improvement in revenues in last 3 years. It earns high profits. It has good brand in the industry. Considering all these positive factors, investors can invest in this IPO. It is catching so much of attention of investors that one may even get listing gains too.

Disclaimer: I am the policy holder of ICICI Pru life. I have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh
ICICI Pru Life IPO – Should you invest

31 comments

  • Harsh

    Dear Sureshji,
    I have got all four lots which i have applied after reading your review.
    Is it advisable to hold this share for long term, period of 2 year or more.
    Please share your view.
    Kind Regards,
    Harsh Patel

  • Dhanush

    Hello Sir,

    Contrary to the interest and hype this IPO had generated, it appears as if the subscription is proceeding rather slowly… Only 52% so far…
    Should I just cancel my subscription while I have the opportunity… Will greatly appreciate your insight! Thanks in advance…

  • Vijay Kangra

    Dear Sureshji,

    What should be the minimum bid qwantity and price one should bid to get the shares.

    Thanks

    Vijay

  • Gaurav

    Dear Suresh,

    Pls may share your analysis for IPO of HPL Electric and Power Limited, We are waiting for the same.

    Regards

    Gaurav

  • Sandeep

    Hi Suresh,

    I have some queries regarding IPO's , please clarify 

    1) I do not hold ICICI shares. I have a general question for any IPO. Can an individual apply both under retail

    ( < 2  lakhs ) and HNI ( above  2 lakhs ) for a same IPO ?

    2) I believe , based on new rules of allocation of shares is probability based. So, if subscription is more it is better to bid for a single lot at a cutoff price. How about in HNI ? How allocation happens in HNI category ? 

    What should be the approach of HNI for bidding for a IPO when subscription is more, so that he/she gets allocation ?

    3) Does HNI category comes under retail or NII ? If NII, how much % of NII ( usually total of 15% of IPO is allocated for NII ) is reserved for HNI ?

    Thanks,

    Sandeep. 

     

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