ICICI Pru Life declines 11% on debut

Overpricing and weak markets blamed for the poor show

Shares of ICICI Prudential Life Insurance Company declined 11 per cent during the scrip’s stock market debut on Thursday. The sharp fall, amid weakness in the secondary market, was despite strong demand for its Rs 6,000-crore initial public offering (IPO) last week.

Shares of the company closed at Rs 297.65 a share, down Rs 36.35, or 10.88 per cent, compared with the issue price of Rs 334 per share. The stock touched a high of Rs 334 and a low of Rs 295 on the BSE.

ICICI Prudential Life’s IPO, the first by a domestic life insurance company, had seen nearly 10 times more demand than the shares on offer.

The first day performance of the stock is one of the worst this year for an IPO. The stock had declined nearly five per cent on listing on the back of selling from high net worth individuals and the sell-off accelerated as the secondary markets came under pressure on escalation of tensions between India and Pakistan.

ICICI Pru Life lost over Rs 5,000 crore of market capitalisation, with its valuation coming down to Rs 42,722 crore, compared with nearly Rs 48,000 crore at the IPO price.

S P Tulsian, an independent market expert, said the drop in the share price was due to pricing the issue substantially above the fair value. “The fair price for the insurer would be Rs 300-310. It would have been good if the issue had got priced near the lower end of the price band,” he said, adding that the valuations were high on the basis of price-to0book and price-to-earnings multiples.

The price band for the IPO was Rs 300-334 a share and the issue was priced at the top end, following good demand.

“Despite the fall on the listing day, the long-term prospects of the stock continue to look good. ICICI Pru is still well-positioned for growth,” said Arun Kejriwal, director, Kris Capital.

Brokerages had offered mixed reviews to their clients about the IPO. While most brokerages had recognised the insurer’s healthy growth and numbers, they felt the pricing had left little or no gains on the table for investors.

At the issue price, the life insurer was valued 50 per cent higher than the valuation of the company during the private placement it made in 2015 to a company of the Azim Premji group and Singapore’s Temasek.

ICICI Pru Life’s IPO was managed by Bank of America Merrill Lynch and ICICI Securities. CLSA India, Deutsche Equities, Edelweiss, HSBC, IIFL Holdings, JM Financial, SBI Capital Markets and UBS Securities also worked on the IPO. ICICI Pru Life’s issue was the biggest since Coal India’s Rs 15,000-crore IPO in October 2010.

ICICI Pru Life is the largest private insurance company in India with a market share of 21.9 per cent in the private sector and 11.3 per cent share in the overall industry. ICICI Prudential reported a net profit of Rs 1,650 crore for 2015-16, data from the annual report showed. Nearly 75 per cent of ICICI Pru Life’s business came from unit linked insurance plans (Ulips) in the last financial year.