I-Pru Life: Why the listing disappointed

Experts say offer price captured much of the valuations, leaving little room for listing gains

The initial public offering (IPO) of ICICI Prudential Life Insurance may be a classic example of how perfectly priced offerings miss the listing bonanza. The stock declined 11 per cent on its market debut on Thursday, whereas recent issues such as RBL Bank, Equitas and Ujjivan from the financials space saw 1022 per cent listing gains.

Weak market sentiments after the IPO closure (the Sensex was down about two per cent since September 21 and Max Financial, proxy to the life insurance business, down nearly three per cent) is partly responsible. But, even before the market stumbled because of geopolitical tensions between India and Pakistan, the I-Pru Life stock (after seeing marginal gains in morning trades) was already five-six per cent below its offer price. Dhananjay Sinha, head of research, Emkay Global said: “The general consensus was the issue is fully priced and, hence, the immediate upside could be restricted in the near term."

But, Debasish Purohit, head of financial institutions group, investment banking, Bank of America Merrill Lynch, has a different view. “The issue was very well subscribed across all categories of investors at the top end of the price band, thereby underlining the investor acceptance of the IPO price band," he asserts. In fact, when benchmarked against the recent HDFC Life-Max Life transaction valued at 3.8–4x FY16 embedded value, I-Pru Life’s offering was at a discount and therefore valuations alone could not have done the damage.

There is also a strong market buzz that selling from high net worth individual (HNI) investors added to the fall. The category was subscribed 28.6 times, so the allotment was less than four per cent. Consequently, their cost of acquisition of shares increased, especially for those investors who took finance to subscribe to the offer. Given the muted listing, to cut short their losses, such investors could have sold. “This has played against the I-Pru Life listing despite the issue being fairly subscribed at the high-end of the price band," explains an expert on conditions of anonymity.

But with the dust of valuations settling down, I-Pru Life, at ~298, trades near 3x the FY16 embedded value. Experts say this makes it an interesting opportunity. Investors who missed subscribing to the issue should look at the stock at present levels, Sinha says.

Deven Choksey, managing director, KR Choksey, shares the view. “Any price correction should be looked as an opportunity for investors with long-term interest in the insurance sector," he says. “For a business that generates 30 per cent return on capital employed given 15–16 per cent revenue growth, valuations will only get better from here on," he adds.