ICICI Lombard public offer subscribed three times

The Rs 5,700-crore initial public offering (IPO) of ICICI Lombard General Insurance Company garnered three times subscription. Its 61-million share offering saw a total bid of 183 million shares. Nearly 75 per cent of the bids came from institutional investors, with the qualified institutional buyer (QIB) seeing eight times more demand than the shares on offer.


The retail investor category saw 1.2 times subscription; high net worth individual (HNI) segment was subscribed only 82 per cent and the portion reserved for ICICI Bank shareholders barely saw a full subscription. The offering saw over one million investor applications. The price band for the IPO was fixed at Rs 651-Rs 661 a share. At the top end of the price band, ICICI Lombard is valued at Rs 30,000 crore.


Market players said the offer received lukewarm response from retail and HNI investors on concerns that the stock might not see any listing-day gains, given the premium valuations. At the issue price, the offering was priced at over eight times its 2016-17 book value (BV).


“At this valuation, the issue seems expensive… In May 2017, Fairfax Financial Holdings sold 12.2 per cent of its stake, held through a wholly-owned subsidiary FAL Corporation, valuing the company at Rs 20,000 crore (around 5.4 times its FY17 BV). The current issue valuation is at 8.1 times, a sharp increase in premium in such a short span may not be justified,” said a note by Centrum.


Many brokerages have recommended their clients to subscribe to the IPO with a long-term investment horizon.


Analysts say ICICI Lombard can be a play on high-growth potential offered by the non-life insurance sector.


India remains an underpenetrated market, with penetration of non-life insurance at only 0.77 per cent, compared to a global average of nearly three per cent. CRISIL expects the non-life insurance market to double in the next four-five years.


“At the upper band of Rs 661, the firm trades at 46.5 times its March 2017 earnings. Return on equity is also expected to remain strong in the range of 18 to 20 per cent, on high investment income and better operating efficiency. The company has robust payout ratio. Hence, we recommend subscribing for long-term gains,” Prabhudas Lilladher says in a note.

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