ICICI Lombard - IPO Note - Long-term Bet on Strong Growth Prospects

ICICI Lombard General Insurance Company (ICICI Lombard) – a JV between ICICI Bank and Canada-based Fairfax Financial – is the largest private sector non-life insurer in India in terms of Gross Direct Premium Income (GDPI), which stood at Rs107.3bn in FY17 compared to Rs80.9bn in FY16. It offers a wide range of insurance products i.e. Motor, Health, Crop/Weather, Fire, Personal Accident, Marine and liability etc. Among all non-life insurance companies in India, its market share on GDPI basis stood at 8.4%, while amongst 23 private sector life insurers in India, its market share stood at 18% in FY17. With diverse range of products and services, it is well-placed to compete with public sector and major private sector counterparts. 

ICICI Lombard is coming out with an Initial Public Offering (IPO) consisting of 86.2mn shares through 100% book building route. The Price Band of the IPO has been fixed in the range of Rs651-661 per share.  Not more than 47.5% of the Issue will be allocated to Qualified Institutional Buyers, including 5% to MFs. Moreover, not less than 14.3% of the IPO is available for non-institutional bidders, while the rest 38.2% is available for retail investors. The IPO will open for subscription on Monday, September 15, 2017 and will close on Wednesday, September 19, 2017. 

Key Investment Arguments

• Successfully maintaining leadership position among private non-life insurers on GDPI basis.

• Pan-India presence with well-diversified multi-channel product distribution network to access to different customer segments and reduce concentration risk.

• Wide range of insurance products in Motor, Health & Personal Accident, Crop/Weather, Fire, Marine and Engineering space, which contributed 42.3%, 18.9%, 20.1%, 6.9%, 3.2% and 2.1%, respectively to its GDPI in FY17.  

• Robust risk selection and management framework as the Company’s share of losses incurred from catastrophic event since FY13 has been in the range of 1.5%-6.2% vs. average market share of 7.8% by GDPI during the same time period.

Outlook & Valuation

ICICI Lombard 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 since FY04. Besides, a healthy RoE in excess of 17%, its GDPI witnessed 26.7% CAGR through FY15-17 vs. 22.8% for Indian non-life insurance industry. Looking ahead, we expect ICICI Lombard to deliver strong performance on the back of lower general insurance penetration in India. At higher price band of Rs661, the Issue is priced at 35x 1QFY18 annualised earnings, which provides a healthy investment opportunity for the long-term investors. Thus, we recommend SUBSCRIBE to the Issue.