icici lombard general insurance company ltd. lombard general insurance...company name icici lombard...

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edAshika Research - Equities

1

IPO Note: ICICI Lombard General Insurance Company Ltd.

Issue Snapshot

Company Name ICICI Lombard General Insurance Company Ltd.

Issue Opens September 15, 2017 to September 19, 2017

Price Band Rs. 651 to Rs. 661

Bid Lot 22 Equity Shares and in multiples thereof.

The Offer Public issue of 86,247,187 Equity shares of Face value Rs. 10 each, (Comprising of Offer for Sale by

Selling Shareholder (ICICI Bank: 31,761,478 Equity Shares and FAL: 54,485,709 Equity Shares).

Issue Size Rs. 5614.69 – 5700.94 Crore

IPO Process 100% Book Building

Face Value Rs. 10.00

Exchanges NSE & BSE

BRLM DSP Merrill Lynch Limited, ICICI Securities Limited, IIFL Holdings Limited, CLSA India Private Limited,

Edelweiss Financial Services Limited and JM Financial Institutional Securities Limited

Registrar Karvy Computershare Private Limited

Industry: Non-Life Insurance Reco: Subscribe Date: September 14, 2017

1008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

Issue Break up

Issue Size Allocation Equity Shares*

QIB 50% 40,967,414

HNI 15% 12,290,224

RII 35% 28,677,190

Total Public 100% 81,934,828

ICICI Bank Shareholders 4,312,359

Total 86,247,187

*Based on higher price band @ Rs. 985

Company Highlights

ICICI Lombard General Insurance Company Limited (ILGI) largest private‐sector non‐life insurer in India based on gross direct

premium income in fiscal 2017, a position it has maintained since fiscal 2004 after being one of the first few private‐sector

companies to commence operations in the sector in fiscal 2001. It offers customers a comprehensive and well‐diversified

range of products, including motor, health, crop/weather, fire, personal accident, marine, engineering and liability insurance,

through multiple distribution channels. The company was founded as a joint venture between ICICI Bank Limited, India’s

largest private‐sector bank in terms of consolidated total assets with an asset base of Rs.9.9 trillion at March 31, 2017, and

Fairfax Financial Holdings Limited, a Canadian based holding company which, through its subsidiaries, is engaged in

property and casualty insurance and reinsurance and investment management with US$43.38 billion of total assets at

December 31, 2016.

Indian non‐life insurance industry grew at an annual growth rate of 16.6% during FY13‐17, faster than real GDP growth of

7.25% for Indian economy during the same period. The Indian non‐life insurance industry was the 15th largest non‐life

insurance market in the world and the fourth largest in Asia in terms of GDPI in the year ended December 31, 2016,

according to the CRISIL Report. The sector holds significant growth potential in India because of its under‐penetration and

low insurance density compared with other economies. A strong macroeconomic backdrop coupled with a large working

population, rising affluence, rapid urbanization and rising awareness of risk, will continue to propel the growth of the

non‐life insurance industry in India.

Objects of the Offer

Offer for SaleThe Company will not receive any proceeds from the Offer for Sale by

the Selling Shareholder. The objects of the Offer are to achieve the

benefits of listing the Equity Shares of the Company on the Stock

Exchanges. The listing of the Equity Shares will enhance the “ICICI

Lombard” brand name and provide liquidity to the existing

shareholders.

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In FY17, the company issued approximately 17.7 million policies and their gross direct premium income was Rs.107.25

billion, translating into a market share, on a Gross Direct Premium Income (GDPI) Basis, of 8.4% among all non‐life insurers

in India and 18.0% among private‐sector non‐life insurers in India, according to the CRISIL Report. In the three months

ended June 30, 2017, the company issued ~5.2 million policies and its GDPI was Rs. 33.2 bn, representing a market share of

10% among all non‐life insurers in India and 20.2% among private‐sector non‐life insurers in India, according to

provisional and unaudited figures for non‐life insurers released by IRDAI. ILGI’s distribution channels are direct sales,

individual agents, bank partners, other corporate agents, brokers, and online, through which it services individual,

corporate and government customers. The distribution network is spread across 618 out of 716 districts in India.

As of March 31, 2017, the company had the largest total investment assets among the private‐sector non‐life insurers in

India, according to the CRISIL Report. As of June 30, 2017, ILGI had Rs164.5bn in total investment assets with an

investment leverage, net of borrowings of 4.07x as on June 30, 2017. Managements’ investment policy is designed with

the objective of capital preservation and achieving superior total returns within identified risk parameters. The annualized

total portfolio return (including unrealized gains) for fiscal 2017 stood at 13.0%. The total portfolio return (including

unrealized gains) for the three months ended June 30, 2017 was 3.6% and 14.4% on an annualized basis. Listed equities

made up 14.8% of the total investment assets, by carrying value, as of June 30, 2017.

The company has an established track record of delivering returns to shareholders and its RoE has exceeded 15.6% each

year since FY15. The RoE stood at 17.3% for FY17 and 21.9% (on annualized basis) for Q1FY18. ILGI has a strong capital

position with a solvency ratio of 2.13x as of June 30, 2017 compared to the IRDAI‐ prescribed control level of 1.50x. It has

paid cumulative dividends (exclusive of dividend distribution tax) of Rs. 4.14bn since FY15.

View

ILGI is the general insurance arm of ICICI Bank group. It is a market leader across segments like Motor business with 19%

private market share, Health & Accident Insurance with 15.4% private market share, Crop Insurance with 22% private

market share, Fire with 16.6% market share, Marine with 26% market share.

On performance front, ILGI’s revenues & net profit have grown at a CAGR of 11.3% and 16.1% over last 5 years. ICICI

Lombard posted robust results in Q1FY18 with GDPI up by 15.3% to Rs.3,321 cr, Operating profit increasing 56% to

Rs.192 cr and Net profit up 66% to Rs.214 cr on total revenues of Rs.1881.9 cr. ILGI’s GDPI has grown at a CAGR of 15% in

last 5 years to Rs.10,725 Crs in FY17 (FY13: Rs. 6,134 cr) indicating a strong growth for general insurance business in the

Indian economy for the years ahead. The company has delivered strong ROEs in excess of 16% consistently for last 5 years

(FY17: 17.3%). ILGI attained a very healthy solvency Ratio of 2.1x in FY17 (1.82x in FY16) compared to the IRDAI

prescribed control level of 1.5x and an Indian non-life private-sector average of 1.95x primarily due to the growth in its

Net profit from Rs. 505 cr to Rs. 641 cr during the same period taking the company to a position of strength to harness the

opportunities of risk transfer in the Indian and international domain. The solvency ratio of the Insurer further improved to

2.13x in Q1FY18. The Expense ratio of ILGI has decreased by 2% in FY17 to 24%. The reduction in FY17 was primarily due

to an increase in commission received from reinsurance ceded in relation to the crop insurance business, which typically

has lower retention rates and higher commission received from reinsurance.

Despite the country’s size and growth profile, India continues to be an underpenetrated market with a non-life insurance

penetration of only 0.77% in 2016, as compared to 1.81% in China, 1.7% in Thailand, 1.67% in Singapore and 1.62% in

Malaysia and a global average of 2.81% in 2016 and also lower insurance density compared to other developed and

emerging economies. The untapped opportunity and penetration in general insurance provides ample scope for ILGI to

grow its portfolio at a rapid pace. On valuation front, at the higher price band of Rs. 661, the issue is valued at post issue

P/E multiple of 46.2x on FY17 EPS and P/BV of 7.6x on Q1FY18 Book Value. There is no direct listed peers to compare with

but top non-banking finance companies trade at P/BV of ~6x which makes ILGI's valuation steep. However we believe that

the company justifies premium valuation given its market leadership in private general insurance category and bright

prospects of the overall general insurance sector in the future. Considering all these aspects, we recommend our investors

to “SUBSCRIBE” the issue from a long term perspective.

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Consolidated Financial Statement

(In Rs. Cr.) FY13 FY14 FY15 FY16 FY17 Q1FY17 Q1FY18

Balance sheet

Sources of funds

Share capital 437.0 445.1 446.6 447.5 451.2 447.7 452.9

Net Worth 1,959.1 2,393.6 2,885.5 3,235.5 3,726.3 3,328.4 3,920.6

Fair value change account 70.0 113.5 356.0 309.0 677.2 473.5 722.4

Borrowings - - - - 485.0 - 485.0

Total 2,029.1 2,507.1 3,241.4 3,544.5 4,888.6 3,801.9 5,128.1

Application of funds

Investments 7,800.0 9,290.0 10,199.7 11,562.5 15,078.9 12,841.8 16,446.4

Fixed assets 400.4 389.5 389.7 383.2 382.7 380.0 378.1

Deferred tax asset 48.5 35.1 96.9 123.9 87.3 113.4 104.1

Current assets 4,387.9 5,029.2 3,959.4 5,044.6 7,801.7 6,778.8 8,079.0

Current liabilities and provisions 10,697.1 12,236.6 11,404.3 13,569.7 18,462.1 16,312.0 19,879.5

Net current assets -6,309.2 -7,207.5 -7,444.9 -8,525.1 -10,660.3 -9,533.2 -11,800.6

Total 2,029.1 2,507.1 3,241.4 3,544.5 4,888.6 3,801.9 5,128.1

Profit & Loss Account

Premiums earned (net) 4,012.3 4,352.3 4,234.1 4,826.3 6,157.8 1,393.1 1,533.8

Profit on sale/ redemption of investments (net)

57.5 121.7 175.4 270.4 297.0 94.8 158.8

Others 14.6 21.5 31.5 48.3 26.9 6.2 4.8

Interest, Dividend & Rent- Gross 403.0 532.9 603.8 659.2 698.9 163.8 184.5

Total Income 4,487.4 5,028.4 5,044.8 5,804.3 7,180.5 1,657.9 1,881.9

Claims incurred (net) 3,350.2 3,628.9 3,445.6 3,939.1 4,965.6 1,153.3 1,197.5

Commission (net) -183.1 -229.1 -346.3 -328.0 -434.1 -97.3 -103.7

Operating expenses related to insurance business

1,017.7 1,215.8 1,387.1 1,711.2 1,982.0 478.9 596.4

Total Expenses 4,184.7 4,615.6 4,486.4 5,322.3 6,513.5 1,534.9 1,690.2

Operating profit 302.7 412.8 558.4 482.0 667.0 123.0 191.7

Income from investments 111.2 136.0 182.0 227.8 314.6 69.3 121.8

Other income 2.4 7.5 2.1 14.4 2.0 0.1 0.0

Total (A) 416.2 556.3 742.4 724.2 983.7 192.5 313.5

Provisions (Other than taxation) 56.1 12.5 22.0 1.0 5.1 0.7 -0.1

Other expenses 8.8 10.4 15.7 18.4 98.4 2.8 12.9

Total (B) 64.8 22.9 37.7 19.4 103.5 3.4 12.8

Profit before tax (C) = (A-B) 351.4 533.4 704.7 704.8 880.1 189.0 300.8

Provision for taxation -1.4 13.4 119.4 199.5 238.3 59.9 86.4

Profit after tax 352.8 520.1 585.3 505.3 641.8 129.1 214.3

Source: RHP

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(In Rs. Cr.) FY13 FY14 FY15 FY16 FY17 Q1FY17 Q1FY18

CashFlow StatementNet cash from operating activities 984.2 594.9 -97.9 511.5 1,627.8 671.2 764.2

Net cash from investing activities -962.5 -706.4 171.1 -309.9 -1,989.9 -755.5 -819.3

Net cash from financing activities 102.2 3.9 -93.5 -148.5 361.3 -36.7 -12.3

Net increase/(decrease) in cash and cash equivalents

123.9 -107.7 -20.3 53.1 -0.8 -120.9 -67.5

Cash and cash equivalents at the beginning of the year

145.7 269.6 162.0 141.7 194.8 194.8 194.0

Cash and cash equivalents at end of the year

269.6 162.0 141.7 194.8 194.0 73.9 126.6

Key Performance RatioGDPI (Rs. Cr.) 6,134.0 6,856.2 6,677.8 8,090.7 10,725.2 2,880.4 3,320.9

Earnings per share 8.08 11.7 13.14 11.3 14.32 2.88 4.74

Book value per share 40.49 53.78 64.61 72.3 82.57 74.34 86.54

Operating Profit Ratio 7.53% 9.40% 12.96% 9.49% 10.79% 8.81% 12.57%

Net earnings Ratio 8.79% 11.95% 13.82% 10.47% 10.42% 9.27% 13.97%

Return on Net Worth Ratio 19.94% 21.73% 20.29% 15.62% 17.23% 3.88% 5.47%

Yield on total investments 8% 9% 10% 11% 10% 11% 12%

Solvency ratio actual (times) 1.55 1.72 1.95 1.82 2.1 1.78 2.13

Liquid Assets to liabilities Ratio 14.02% 17.53% 13.59% 11.95% 13.94% 9.48% 13.67%

Source: RHP

(In Rs. Cr.)FY15 FY16 FY17 Q1FY18

Rs. (in bn) % Rs. (in bn) % Rs. (in bn) % Rs. (in bn) %

Products

Motor:

Own Damage 21.3 31.9% 25.2 31.2% 27.6 25.7% 7.1 21.3%

Third-party 12.8 19.2% 16.3 20.1% 17.8 16.6% 5.1 15.2%

Total Motor 34.2 51.2% 41.5 51.3% 45.4 42.3% 12.1 36.5%

Health and Personal Accident:

Health 13.2 19.7% 13.8 17.1% 16.7 15.5% 4.9 14.9%

Personal Accident 2.3 3.5% 2.8 3.4% 3.6 3.3% 1.1 3.3%

Total Health and Personal Accident 15.5 23.2% 16.6 20.6% 20.3 18.9% 6.0 18.2%

Crop/Weather 2.8 4.1% 5.9 7.3% 21.5 20.1% 7.2 21.8%

Fire 5.5 8.2% 6.3 7.8% 7.5 6.9% 3.1 9.4%

Marine 2.5 3.7% 3.0 3.7% 3.4 3.2% 1.2 3.5%

Engineering 1.7 2.6% 2.0 2.5% 2.3 2.1% 0.8 2.5%

Other 4.7 7.1% 5.6 6.9% 7.0 6.5% 2.7 8.1%

Total 66.8 100.0% 80.9 100.0% 107.3 100.0% 33.2 100.0%

Source: RHP

Comparison with listed industry peers

There are no listed non‐life insurance companies in India. Accordingly, it is not possible to provide an industry

comparison in relation to the Company.

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(In Rs. Cr.) FY15 FY16 FY17 Q1FY18

Operating PerformanceLoss Ratio:

Motor:

Own Damage 61.6% 65.5% 64.8% 62.2%

Third-party 105.8% 97.7% 97.4% 97.5%

Overall Motor 80.0% 80.2% 79.2% 77.9%


Health 88.8% 86.0% 97.9% 86.0%

Personal Accident 79.7% 64.3% 41.3% 43.8%

Overall Health and Personal Accident 87.9% 83.2% 90.2% 78.6%

Crop/Weather 80.0% 140.0% 84.2% 140.1%

Fire 96.0% 64.3% 68.4% 60.7%

Marine 98.7% 94.8% 86.3% 75.0%

Engineering 74.4% 71.4% 53.4% 52.3%

Other 55.2% 69.1% 62.2% 49.8%

Loss Ratio 81.4% 81.6% 80.6% 78.1%

Net Expense Ratio:

Motor:

Own Damage 25.7% 31.7% 33.0% 37.9%

Third-party 33.8% 33.5% 33.0% 34.7%

Overall Motor 29.5% 32.5% 33.0% 36.5%


Health 7.9% 6.4% 5.7% 7.0%


Overall Health and Personal Accident 9.3% 9.3% 8.9% 9.2%

Crop/Weather -25.5% -19.8% -12.1% -10.1%

Fire 1.0% -25.3% -10.0% -14.3%

Marine 31.2% 32.1% 34.2% 33.4%

Engineering -10.1% -1.8% 4.1% 9.7%

Other 43.0% 41.0% 40.3% 33.7%

Net Expense Ratio 23.5% 25.5% 23.5% 24.3%

Combined Ratio:

Motor:

Motor – Own Damage 87.4% 97.1% 97.7% 100.1%

Motor – Third-party 139.6% 131.2% 130.4% 132.2%

Motor 109.6% 112.7% 112.2% 114.4%


Health 96.8% 92.5% 103.5% 93.1%


Health and Personal Accident 97.1% 92.5% 99.1% 87.8%

Crop/Weather 54.5% 120.1% 72.1% 130.0%

Fire 97.0% 39.0% 58.4% 46.4%

Marine 129.9% 127.0% 120.5% 108.4%

Engineering 64.2% 69.6% 57.4% 62.1%

Other 98.3% 110.2% 102.5% 83.5%

Combined Ratio 104.9% 107.1% 104.1% 102.4%

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Ashika Stock Broking Limited (“ASBL”) or Research Entity has started its journey in the year 1994 and is engaged in the business of broking services,

depository services, distributor of financial products (Mutual fund, IPO & Bonds). This research report has been prepared and distributed by ASBL in the

sole capacity of a Research Analyst (Reg No. INH000000206) of SEBI (Research Analyst) Regulations 2014. ASBL is a wholly owned subsidiary of Ashika

Global Securities (P) Ltd., a RBI registered non-deposit taking NBFC Company. Ashika group (details is enumerated on our website

www.ashikagroup.com) is an integrated financial service provider inter alia engaged in the business of Investment Banking, Corporate Lending,

Commodity Broking, Debt Syndication & Other Advisory Services.

There were no significant and material disciplinary actions against ASBL taken by any regulatory authority during last three years.

Disclosure

ASBL or its associates, its Research Analysts (including their relatives) may have financial interest in the subject company(ies). However, the said

financial interest is not limited to having an open stock market position in /acting as advisor to /having a loan transaction with the subject company(ies)

apart from registration as clients.

1) ASBL or its Research Analysts (including their relatives) do not have any actual / beneficial ownership of 1% or more of securities of the subject

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Name Designation Email ID Contact No.

Paras Bothra President Equity Research [email protected] +91 22 6611 1704

Sanjeev Jain AVP Equity Research [email protected] +91 33 4036 0650

Krishna Kumar Agarwal Equity Research Analyst [email protected] +91 33 4036 0646

Partha Mazumder Equity Research Analyst [email protected] +91 33 4036 0647

Arijit Malakar Equity Research Analyst [email protected] +91 33 4036 0644

Kapil Jagasia Equity Research Analyst [email protected] +91 22 6611 1715

Tirthankar Das Technical & Derivative Analyst [email protected] +91 33 4036 0645

Research Team

http://www.ashikagroup.com/





icici lombard general insurance company ltd. lombard general insurance...company name icici lombard...

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