ICICI Prudential Life shares tumble 11% on market debut

Shares of ICICI Prudential Life Insurance Co. Ltd ended their first day on the stock exchanges nearly 11% below their issue price, even after the company’s Rs6,057 crore initial public offering (IPO) was subscribed 10.48 times last week.

Analysts, while recommending investors to subscribe to the issue, had also flagged concerns over expensive valuations. After opening at a discount, shares fell further along with the decline in broader markets later in the day, as investors panicked after the army launched surgical attacks on terrorist camps in Pakistan.

ICICI Prudential, a subsidiary of India’s top private sector bank, ICICI Bank Ltd, is the country’s largest private sector life insurer, with assets of Rs1.01 trillion. It is the first Indian insurer to go for an IPO. The IPO was also the largest new share sale in India since state-run Coal India Ltd raised Rs15,000 crore in 2010.

ICICI Prudential shares opened at Rs329 on Thursday, 1.5% below the issue price of 334, and touched a high and low of Rs333.9 and Rs295.50, respectively, during the day. Shares closed 10.88% lower at Rs297.65 on BSE, below the lower end of the IPO price band of Rs300-334.

BSE’s benchmark Sensex shed 1.64% to close at 27,827.53 points on Thursday.

Mint had reported on 19 September that ICICI Prudential Life’s IPO may not see much of a listing pop as valuations appear stretched, after the offer did not leave much on the table for investors. Analysts, however, had recommended a subscribe, citing long-term potential.

“I think the steep fall at debut for ICICI Prudential was a combination of two factors. The issue was considered to be fully priced, and the volatility in the market aggravated the fall for the stock,” said Dhananjay Sinha, head of research at Emkay Global Financial Services Ltd. “I think it would be a good buy at lower levels, provided one is looking at an at least 1- or 2-year horizon.”

Optimism over the long-term prospects of the stock seemed to be widespread.

“The response was very encouraging and we had strong demand at the top end of the price band. This IPO has opened up a new sector for investors to invest in. One has to look at the long-term underlying story which is robust,” said Debasish Purohit, head, financial institutions group of investment banking, Bank of America Merrill Lynch, one the lead investment bankers, along with ICICI Securities, that managed the share sale.

“Being a leading representative of a new sector, the stock could get included in various indices at some point of time,” said Purohit.

Among the top 10 IPOs to date, ICICI Prudential is the seventh-largest such sale in terms of issue size. Among these IPOs, only three IPOs have posted losses on listing day. Shares of Reliance Power Ltd had slumped 17.22% on debut in February 2008, while Cairn India Ltd shares fell 14.06% on the listing day in January 2007.

After listing, ICICI Bank’s stake in the insurer has dropped to 54.89% from 67.42% earlier. Prudential Corp. Holdings Ltd.’s stake remains unchanged at 25.83%

The company reported consolidated revenue of Rs20,227.94 crore for full-year fiscal 2016, down from Rs33,955.76 crore in fiscal year 2015. Its net profit for fiscal 2016 stood at Rs1,652.72 crore, as against Rs1,640.35 crore in the prior year, as per the prospectus.