 "Listing of life insurance biz a boost for ICICI Bank")
Siddharth Purohit of Angel Broking says investors must look at the listing as more than a just fund-raising plan by ICICI Bank. “I expect a good amount of valuation re-rating to happen for ICICI Bank on account of listing its insurance business, and this will hold long-term value for investors."
ICICI Prudential Life is among the fast-growing subsidiaries focusing largely on unit-linked policies for individual policy holders, and is reckoned to be a very profitable business for ICICI bank. Analysts at Edelweiss value the life insurance business at Rs 34,216 crore based on its appraisal value (sum of present value of the business and expected earnings from new policies in future) and ascribe a value of Rs 40 per share. In other words, it accounts for 50 per cent of the total value of ICICI Bank’s subsidiaries and 11 per cent of the consolidated valuation of ICICI Bank’s share. This is even higher than what HDFC Standard Life contributes to the consolidated valuations of HDFC Limited (5-6 per cent).
It is in the value-accretive nature of the business that analysts see gains for ICICI Bank. “Even as the bank is grappling with asset quality pain, its capital adequacy is at decent levels. The listing of its life insurance business will further enhance its capital base,” adds Purohit.
Meanwhile, ICICI Bank also plans to raise debt funds worth Rs 25,000 crore as part of its long-term fund-raising strategy. This might lead to a slight increase in cost of funds for the bank depending on the instrument and timing of the fund-raising, say analysts. While profitability has hit a rock bottom in the March 2016 quarter and could look up from hereon led by growth in retail loans, asset quality is expected to remain under stress in FY17 (due to corporate book) and is likely to act as an overhang for the stock. Of the 13 analysts that have come out with a recommendation in the past week, eight have a 'buy', two a 'hold' and three a 'sell' rating. Their average target price of Rs 283 also indicates limited gains.
Meanwhile, ICICI Bank also plans to raise debt funds worth Rs 25,000 crore as part of its long-term fund-raising strategy. This might lead to a slight increase in cost of funds for the bank depending on the instrument and timing of the fund-raising, say analysts. While profitability has hit a rock bottom in the March 2016 quarter and could look up from hereon led by growth in retail loans, asset quality is expected to remain under stress in FY17 (due to corporate book) and is likely to act as an overhang for the stock. Of the 13 analysts that have come out with a recommendation in the past week, eight have a 'buy', two a 'hold' and three a 'sell' rating. Their average target price of Rs 283 also indicates limited gains.