ICICI Prudential Life Insurance recently came-out with a public issue and the initial public offering was well received. A host of domestic institutions subscribed to the offer, resulting in a good over susbscription. In fact, one does not have too many listed life insurance companies against which you can compare ICICI Prudential Life Shares. So, in the sense, the company is very unique and there are not much peers to compare with in the listed space.
Shares below the IPO price
Shares in ICICI Prudential are currently trading at Rs 310, as against the offer price of Rs 332.
Now, you are getting the share price at a discount of almost 8 per cent to the offer price of Rs 332. This is not bad at all for a company that saw a good response to its IPO price. In fact, the shares were supposed to have traded at a premium to the offer price, but got listed below.
If you get the stock below Rs 300, it could be a ideal pick at those levels.
A huge potential for life insurance
The life insurance business in India is highly under penetrated. Insurance in the country is just 3.9 per cent, as against the world average of 6.3 per cent. In fact, we are no where close to the developed countries when it comes to insurance.
This leaves immense potential for a player like ICICI Prudential, which can see a surge in demand for its life insurance business. However, we must point out that the company has been heavily dependent on the ULIP business, which it should diversify from.
At the current market price of Rs 310, the stock is trading at a p/e of 27 times its FY 2017 earnings. While this is not cheap, one has to keep in mind the company's potential for future growth. The stock is trading at a price to embedded value of just 3 times, which makes the stock a good buy at the current level.
It is extremely important for readers to remember that the insurance business is an extremely risky business. A sudden spurt in claims, may damage the prospects of the company. Also, as mentioned earlier, a lot of the business is skewed towards the ULIP business, which in itself is rather risky.A sudden crash in equity markets, may lead to adverse effect.
Rationale for investment
Earnings for the company are expected to increase in the coming years, as insurance business penetration at the company improves. This would lead to an ongoing increase in the life insurance business, which should benefit the company. The stock is still slightly overvalued and you can adopt a buy on dips story.
We believe, that if the company can report an EPS of at least Rs 25 by 2017-18, the stock can move to Rs 500. Check ICICI Prudential stock quote here
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