September 27, 2017 / 7:02 AM / 10 months ago

UPDATE 1-India's ICICI Lombard makes tepid trading debut after $871 mln IPO

* Shares fall then reverse losses to trade 2.5 pct up

* Analysts warn of rich valuations (Adds analyst comment, details)

By Devidutta Tripathy and Swati Bhat

MUMBAI, Sept 27 (Reuters) - India’s ICICI Lombard General Insurance fell as much as 3.4 percent in its market debut on Wednesday after raising $871 million in an initial public offering, amid worries about valuations for the country’s top private non-life insurer.

The weak debut cast doubts about the potential performance of a slew of upcoming insurer listings this year, including SBI Life Co Ltd, which raised $1.3 billion last week in India’s biggest IPO in seven years.

These insurers have attracted strong investor demand: ICICI Lombard was nearly three times susbcribed, allowing it to raise 57 billion rupees, about $871 million, while SBI Life was 3.5 times subscribed.

But some investors have cited concerns about valuations, with analysts estimating the IPO valued ICICI Lombard, the first company to list from the local non-life insurance sector, at a price to book value of 8 times.

Chintan Gupta, a research associate at local brokerage Way2Wealth, said ICICI Lombard was expensively priced, but added the insurance business still has low penetration levels in India and thus has a strong outlook from a long-term perspective.

“Currently due to the high liquidity in the market, companies are pricing themselves at a higher premium,” Gupta said.

“However, from a long-term perspective it still is a good investment.”

Shares in the ICICI Lombard fell as much as 3.4 percent in early trade, but reversed their losses to trade 2.5 percent higher at 677.50 rupees by 0625 GMT, compared with its IPO price of 661 rupees.

ICICI Bank and Canada’s Fairfax sold a combined 19 percent stake in the non-life insurer during the IPO, but continue to be shareholders in the company.

India’s share markets have set a series of record highs this year amid strong inflows into mutual funds by retail investors, sparking a rush of listings.

Companies havve already raised nearly $6 billion, and some analysts say they expect it to to surpass the record $8.5 billion raised in 2010.

Among the listings will be a slew of insurance companies, including SBI Life, which makes its debut next week.

ICICI Lombard is expected to benefit from strong growth in the non-life insurance sector.

IIFL Investment Managers estimated India’s gross direct premium income, a key metric for the sector, reached only 0.77 percent of gross domestic product last year, compared to 1.81 percent in China or a global average of 2.81 percent.

But valuations could remain a concern. SBI Life, which is set to make its debut on Tuesday, was offered at a 4.2 times embedded value, more expensive than the 4 times in ICICI Lombard, according to analyst estimates. ($1 = 65.5625 Indian rupees) (Reporting by Devidutta Tripathy and Swati Bhat; Editing by Edwina Gibbs)

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