ICICI Lombard IPO – Should you invest in this IPO?

ICICI Lombard IPO - Should you invest in this IPOICICI Lombard IPO – Should you invest in this IPO?


ICICI Lombard IPO would open for subscription on 15th September, 2017. ICICI Lombard General Insurance Ltd is the largest private-sector non-life insurer in India. ICICI Lombard General Insurance is part of ICICI Group. Its revenues grew at 24% CAGR in last 5 years. It posted profit of 65% for FY2017. What are the positive factors in ICICI Lombard General Insurance Ltd IPO? What are the hidden factors in ICICI Lombard IPO? Is ICICI Lombard General Insurance Ltd IPO Price is reasonably priced? In this article, I would provide some interesting insights and do ICICI Lombard General Insurance Limited IPO Review. Pls read all risk factors before you conclude on this IPO. 

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About ICICI Lombard General Insurance Ltd


They are the largest private-sector non-life insurer in India based on gross direct premium income in fiscal 2017, a position they have maintained since fiscal 2004 after being one of the first few private-sector companies to commence operations in the sector in fiscal 2002, according to the CRISIL Report. They offer company customers 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. they were founded as a joint venture bettheyen ICICI Bank Limited, India’s largest private-sector bank in terms of consolidated total assets with an asset base of Rs 9.9 trillion at March 31, 2017, and Fairfax Financial Holdings Limited, a Canadian based holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management with US$43.38 billion of total assets at December 31, 2016.

ICICI Lombard IPO Issue details


  • IPO open date: 15-September-2017
  • IPO close date: 19-September-2017
  • Face Value: Rs 10 per share
  • Issue price band: Rs 651  to Rs 661 per share
  • Issue size: Rs  5,700 Crores on higher price band
  • ICICI Lombard IPO Lot size:  Would be updated when availble
  • Minimum investment: Would be updated when availble
  • Leading Managers: BoFA Merrill Lynch, ICICI Securities, IIFL Holdings, CLSA India, Edelweiss Financial Services and JM Financials
  • Listing: BSE / NSE
  • Download ICICI Lombard IPO RHP Prospectus at this link

Objects of the ICICI Lombard General Insurance Ltd IPO issue


The objects of the Offer are

1) To achieve the benefits of listing the Equity Shares of company Company on the Stock Exchanges

2) To carry out the sale of up to 86,247,187 Equity Shares by the Selling Shareholders (ICICI Bank and Fairfax Financial Holdings. Company will not receive any proceeds from the Offer.

Company Financials (reinstated)


1) The company generated revenue of Rs 416.2 Crores for the year ended Mar-13 and Rs 983.6 Crores for the year ended Mar-17.  

2) The company posted a profit of Rs 352.7 Crores for the year ended Mar-13 and profit of Rs 641.8 Crores for the year ended Mar-17.

3) Its FY17 EPS is Rs 14.2 and 3 years average EPS is Rs 13.12.

Financial summary of ICICI Lombard Ltd IPO

What are the key strengths of ICICI Lombard General Insurance Limited?


Here are the key strengths of the company.

1) Consistent market leadership and demonstrated growth.

2) Diverse product line with multi-channel distribution network.

3) Delivering excellence in customer value.

4) Robust risk selection and management framework.

5) Focus on investments in technology and innovation.

6) Strong investment returns on a diversified portfolio.

7) Superior operating and financial performance.

8) Experienced senior management team and enabling work culture.

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What are the Strategies of ICICI Lombard General Insurance Ltd?


Here is what company want to focus on the strategies.

1) Leverage and enhance market leadership.

2) Enhance product offerings and distribution channels.

3) Capture new market opportunities.

4) Further improve operating and financial performance.

5) Continue to invest in technology and innovation.

Reasons to invest in ICICI Lombard IPO


1) It posted strong revenue growth of 24% CAGR in the last 5 years.

2) It posted good margins of over 65% for FY17.

3) It would be the first Non Life Insurance company to get listed in India.

Risk Factors / Reasons not to invest in a ICICI Lombard Ltd IPO


1) Company loss reserves are based on estimates as to future claims liabilities and if they prove inadequate, it could lead to further reserve additions and materially adversely affect company results of operations.

2) Catastrophic events, including natural disasters, could materially increase company liabilities for claims by policyholders, result in losses in company investment portfolios, and have a material adverse effect on company business, financial condition and results of operations.

3) Some of company Directors, company Promoter and certain Group Companies are involved in certain legal and other proceedings.

4) If they do not meet solvency ratio requirements, they could be subject to regulatory actions and could be forced to stop transacting any new business or change company business strategy or slow down company growth.

5) They are involved in insuring assets and other works of the government or participating in government-sponsored insurance programmes and the government or its agencies have in the past and may in the future initiate investigations /enquiries and/or issue prohibitory orders against us, which could materially adversely affect company business, financial condition, results of operations and cash flow.

6) A significant portion of company business comes from working with the government which subjects us to risks which could result in litigation, penalties and sanctions including early termination, suspension and removal from the approved panel of insurers.

7) There are certain risks related to company crop/weather insurance offering that could have a material adverse effect on company business, financial condition, results of operations and prospects.

8) Company business, financial condition, results of operations and prospects may be materially and adversely affected if they are not able to maintain company market position, sustain company growth, develop new products or target new markets

9) Company reliance on motor vehicle manufacturers and ICICI Bank and other key distribution partners subjects us to a concentration risk, and the termination of, or any adverse change to, company relationships with motor vehicle manufacturers and ICICI Bank and such other key distribution partners, or their performance, may have a material adverse effect on company business, financial condition, results of operations and prospects.

10) Any termination of, or any adverse change to, company ability to attract or retain company agents, both corporate and individual, and key sales employees, could have a material adverse effect on company business, financial condition, results of operations and prospects.

11) They rely on selected types of insurance for most of company GDPI and profitability. Any constraint in selling these products due to future regulatory changes restricting or limiting the sale or marketing of these products, changes in customer Preference, or if they are unable to maintain the right portfolio mix of profitable products, could have a material adverse effect on company business, financial condition, results of operations and prospects.

12) Differences between company actual claim payments and those assumptions and estimates used in the pricing of company products could have a material adverse effect on company business, financial condition, results of operations and prospects.

13) Other risk factors (Internal and external) can be viewed in the draft prospectus.

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Recommendation / Investment strategy – ICICI Lombard IPO


1) On the upper price band of Rs 661 and on restated FY17 EPS of Rs 14.32, P/E ratio works out to 46x. Even based on last 3 years restated EPS of Rs 13.12, P/E ratio works out to 50x. Means, company is asking higher price band of Rs 661 in the P/E ratio of 46x to 50x. There is no listed company to compare similar business (non life insurance), hence the issue cannot be ascertained whether it is under priced or over priced.

2) Let us also compare this with listed life insurance companies like ICICI Pru Life share price which is trading at P/E ratio of 37. Comparing to this ICICI Lombard General insurance issue is highly priced.

3) Company revenues grew at 24% CAGR and profits grew at 65% in last 5 years. However, issue price cannot be ascertained whether it is higly priced or under priced as there is no listed peers. However compared to ICICI Life Insurance, this IPO is highly priced. There are other insurance companies lined up for IPO like SBI Life Insurance and HDFC Life Insurance. Don’t expect too much oversubscription in such big size IPOs. One may or may not get listing gains on listing day. High risk investors can invest in this IPO with 2-3 years time frame.

Disclaimer: I do not 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 or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh

ICICI Lombard IPO – Should you Invest in this IPO

10 comments

  • Aakaash

    Thank you Suresh Ji for the analysis. One should definitely apply for IPO of good pedigree with credible management. This IPO fits the bill. ICICI Lombard is one of the pioneers in non-life insurance. Brand recall of ICICI lombard is good. Ask anyone for 2 wheeler, 4 wheeler insurance, and lombard name is prop up. Company is also profitable YoY. Even if its price is bit high, one should apply seeing its growth & opportunity.

  • Ashish

    Your recommendation is incorrect on 2 points 

    1. Life insurance and general insurance are different businesses hence not comparable. Competition, market size, profit margins, products are all different

    2. Icici pru cagr is less than 5% while lombard cagr is impressive 24%. So, money invested in lombard will likely grow 5x faster hence desrves a higher PE.

  • Harsh Patel

    Surehsji,

    First of all want to thankful to you for timely analysis of all upcominv ipos.

    you are right, even long term investor should also stay away from this because if you may get listing gain then it will not be more than 50-60 ruppes per share so why to take risk for such a small amount. Better to buy at lower level if we will get.

    Remeber LT techno ipo, when all had bad experiencs with LT info, people were cautious with techno .

    I suggest to stay away with both ipod icici and sbi.

    you'r comments are welcome.

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