ICICI Lombard General Insurance IPO opens: Here's what five brokerages are saying on the issue

ICICI Lombard General Insurance initial public offer (IPO) which hits the market today has aroused interest from a majority of brokerages and analysts.

The firm is the first general insurer to go public. It is the second insurance company from the ICICI Group to go for an IPO after ICICI Prudential Life Insurance raised Rs 6,000 crore in an initial share sale last year, the first public offering by an Indian life insurer.

ICICI Lombard General Insurance is looking to raise around Rs 5,700 crore at the higher end of the price band which is fixed between Rs 651-661 per share.

Also read: ICICI Lombard IPO: Anchor investors subscribe to shares worth Rs 1,625 crore

The company was founded in 2001 and is a joint venture between two firms-ICICI Bank and Fairfax Financial Holdings. The firm is among the largest general insurance companies in India.

Post-issue, the shareholding of Fairfax would fall to 9.91 per cent from 21.9 per cent now, while the same for ICICI Bank would be reduced to 55.95 from 62.95 per cent.

On Thursday, the private insurer raised Rs 1,625 crore from anchor investors. Anchor investors are institutional investors who are offered shares in an IPO a day before the offer opens. They subscribe to the issue at a fixed price indicating the worthiness of the offer which in turn infuses confidence in other investors.

The volume and value of anchor subscriptions also serves as an indicator of the company's reputation and soundness of the offer.

Each anchor investor has to put a minimum of Rs 10 crore in the issue. 64 anchor investors have applied for subscription of ICICI Lombard at Rs 661 apiece at the upper end of the IPO price band.

Nomura, Abu Dhabi Investment Authority, Kuwait Investment, Goldman Sachs, Reliance Nippon, DSP BlackRock and Franklin Templeton are among the anchor investors.

The initial share-sale offer will close on September 19.

Two state-run general insurers-General Insurance Corp of India and New India Assurance Company-as also two life insurance firms (SBI Life and HDFC Standard Life) have also lined up IPO plans.

Maenwhile, analysts and brokerages are upbeat on the prospects of the IPO but express concern about the steep valuation of the offer.  Here's what they are saying.

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The brokerage is positive on ICICIL (ICICI Lombard) for long term as non-life Insurance sector in India provide huge opportunities for growth due to significantly lower penetration and lower insurance density compared to other developed and emerging economies, it said in a note.

The IPO's valuation is higher than listed non-banking financial companies and private banks, which are delivering high growth, but the multiple is justified given that return on equity has been consistently higher than 15 percent in the last five years, sector's potential is strong, solvency margins are strong and the company has a leadership position in the sector, the brokerage added.

Prabhudas Lilladher: Subscribe The brokerage said the return on equity is likely to remain strong at 18-20%. The company has a robust payout ratio. At the upper end of the IPO price band, insurer trades at 46.5 times its March 2017 earnings per share (EPS) which implies that it is fully priced, the brokerage said in its pre-IPO note on ICICI Lombard, recommending 'subscribe for long term gains'.

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The private insurer has a market share of 18% in the private sector and an overall industry market share of 8.4% in FY17. ICICI Lombard has set a new standard by servicing 17.7 million policies in FY17, an increase of 12% and in terms of claim settlement response time, the company anchored set standards, settling 99.4% health claims and 92.2% motor claims (own damage) within 30 days, it said in a note.

It has advised investors with a long-term view to subscribe to the public offer.

In its pre-IPO note, the brokerage said the insurance sector may see high growth in the coming years due to increasing awareness of risk cover and shift of savings to financial assets. ICICI Lombard being the leader in the sector is well placed to benefit from this trend.

Angel Broking: SubscribeThe overall loss ratio of the company has been improving over the last few years and it has come down to 80.6% during FY2017 from a level of 83.5% in FY2013. Over FY2016-17 there has been a 100 bps improvement in the loss ratios. Similarly, the expenses ratio has also fallen gradually with a 350 bps improvement in the last one year

At the upper price band of Rs 661, the issue is offered at 8 times its 2016-17 book value. While on the reported numbers it might appear to be fairly valued, the brokerage believes with strong potential to deliver high double digit growth for next multiple years, the issue looks decently priced and has assigned a subscribe rating on the issue. The brokerage said that ICICI Lombard will continue to gain market share in the coming years due to its large distribution network.

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The brokerage said ICICI Lombard's valuation is high considering the return on equity (ROE) of 17.2% for financial year ended March 2017, loss ratio of 80.6% and the combined ratio of 104% is lower than the average of private peers. However, the issue may be a hit because it is the first general insurer to list, it said. Moreover, the non-life insurance segment is underpenetrated in India and the company's financials are strong.