ICICI Lombard makes tepid trading debut

ICICI Lombard, the country’s largest private sector general insurer, had a tepid trading debut with its stock slipping as much as 3.4 per cent. The stock, however, managed to recoup most of the losses — despite weak market conditions — to close with 2.87 per cent gains. 

Shares of ICICI Lombard closed at Rs 680 compared to the issue price of Rs 661. The stock touched a high of Rs 694 and a low of Rs 639 on the National Stock Exchange (NSE). A total of Rs 2,708 crore worth of shares were traded on the NSE and the BSE. 

Analysts said the weakness in the market and correction in financial stocks weighed on the stock performance. The benchmark Nifty has come off four per cent in the past eight trading sessions, while the Bank Nifty index has decline five per cent.

Market participants were not expecting a blockbuster listing for ICICI Lombard as the issue was “fairly priced” at eight times its 2016-17 book value (BV).

ICICI Lombard’s Rs 5,700-crore offering was subscribed just three times, with nearly three out of four bids coming from institutional investors. 

“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,” Centrum had said in a note during the initial public offering (IPO).

Analysts said investors with long-term investment horizon can consider exposure to the stock as a play on the non-life insurance sector, which has high-growth potential. 

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 current market trade, ICICI Lombard stock is valued at around 45 times its March 2017 earnings. 

Although on a price-to-earnings basis the stock is expensive, analysts say it appears attractive thanks to its high return on equity ratio, which is expected to sustain. “Return on equity is 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,” brokerage firm Prabhudas Lilladher had said in a note.ICICI Lombard IPO comprised the offer for sale (OFS) by ICICI Bank and Fairfax Financial. The offering was second listing from the ICICI Bank group in the past one year. 

Last September, ICICI Bank had offloaded part of its stake in ICICI Prudential Life Insurance. Shares of ICICI Pru, too, had slipped below their IPO price on listing. The stock, however, is currently up 17 per cent over its issue price.