I-Pru falters on listing, ends 11% down on rough day

Investors who bet on the initial public offer of India’s first insurance company ICICI Prudential Life Insurance company (I-Pru) were caught on the wrong foot on Thursday. The company’s stockm which listed at a marginal discount of 1.5 per cent to the issue price of ₹334, lost substantial ground to close down 11 per cent on the BSE on a day when the overall market fell on jitters over border tensions.

Parent ICICI Bank’s shares too closed down about 4 per cent.

Market experts believe that I-Pru’s stock still looks expensive as its fundamentals are not particularly strong for the insurance sector. “Industry growth has tapered off due to the economic slowdown, and the intensity of competition has gone up. Players are vying to get bigger. I-Pru’s profit has grown at an annual rate of 5 per cent in the last four years,” said G Chokkalingam, Founder, Equinomics Research and Advisory.

According to a recent Motilal Oswal report, the implied value for HDFC life Inusrance is ₹48,000 crore (pre-merger). On Thursday, I-Pru’s market capitalisation stood at ₹42,700-odd crore on the BSE.

Analysts believe that the current valuation of ICICI Prudential, at about 3.5 times price to embedded value (EV), is not sustainable. EV is a common valuation measure in the insurance industry; it measures the potential future profits from the existing business.

ICICI Prudential Life Insurance, which is currently the market leader, will become the second-largest private insurance company in terms of market share in annual premium equivalent, following the merger of HDFC Life Insurance and Max Life Insurance, which will be completed in 12-15 months.

In FY16, I-Pru’s EV stood at ₹13,940 crore, with a return on EV of 15.3 per cent compared to HDFC plus Max’s ₹15,800-odd crore and 17.4 per cent, respectively, according to analysts reports.

Analysts at Motilal Oswal and IIFL are bullish on HDFC Life’s prospects. They expect the merged entity’s valuation to go up further. Most analysts were also positive on I-Pru’s IPO and recommended it as worthy of subscription, but some flagged the valuation as expensive.