ICICI Prudential IPO: 10 things to know before you subscribe

The initial public offer (IPO) of ICICI Prudential Life Insurance, the first public offer by an insurer in Indian market, kicked off in the primary market on Monday to raise around Rs 6,050 crore.

This would be the biggest initial public offering after Coal India. The state-run firm had hit the capital markets in 2010 to raise over Rs 15,000 crore.

Below are 10 facts that you must know about the ICICI Prudential IPO:  

1. ICICI Prudential Life Insurance is a JV between ICICI Bank and Prudential Corporation Holdings, a part of Prudential Group. The company is the largest private sector life insurer in India by total premium and assets under management (AUM) at the end of FY16.  
2. ICICI Bank owns 68 per cent of the company, and is conducting the ICICI Prudential IPO to sell 12.65 per cent stake, as per draft prospectus available with Sebi. Britain's Prudential Corporate Holding Limited will not be diluting its stake of 26 per cent in the ICICI Prudential Life Insurance IPO.
3. Objects of the Offer are to achieve benefits of listing equity shares on stock exchanges and to carry out the offer for sale. Listing of equity shares will enhance ICICI Prudential's brand name and provide liquidity to existing shareholders. The listing will also provide a public market for the equity shares in India.
4. The public offer comprises of up to 18,13,41,058 equity shares of ICICI Prudential Life Insurance Company, including a reservation of up to 1,81,34,105 equity shares (10 per cent of the offer) for the shareholders of ICICI Bank. The offer would constitute 12.63 per cent of the company's post-offer paid-up equity share capital.
5. ICICI Prudential is well capitalized with a robust solvency ratio of 320 per cent. This compared well with its private sector peers. Solvency ratio is the ratio of available capital (assets minus liabilities) to required capital. Insurers are required to maintain a solvency ratio above 150 per cent at all times.
6. ICICI Prudential has one of the lowest expense ratios among peers as banca & direct (digital) channel sources 57 per cent & 11 per cent of new business on back of strong distribution network of ICICIBC (+4000 branches) and tie-up with StanC. Banca & direct sourcing has negligible costs with better persistency and the company is using these channels to improve its protection business and is margin accretive.
7. Brokerage Prabhudas Liladhar recommended to subscribe the issue for long term gains.
8. At the higher price band of Rs 334, the issue is valued at 3.4x its embedded value of Rs97.1 per share on FY16 basis. The valuations for ICICI Prudential appear attractive when compared to 4.1x of Max Financial Services' embedded value, said brokerage Centrum Wealth. It recommneded 'subscribe' on the issue.
9. Brokerage Angel Broking believes the issue is fully priced in and hence they have a 'neutral' rating on the issue. "At the price of band of Rs 300-334 the issue is offered at 3.1x and 3.4x its reported FY16 EV," said Angel Broking.
10. Risk factors: Higher competition may affect business growth; b) Any termination of/any adverse change in relationships with/performance of bancassurance partners may affect business and financial condition; c) Changes in the regulatory environment