ICICI Prudential Life Insurance Company, India listed in 2016.
It sells life insurance products and manages mutual funds under "ICICI Pru" and earns fees from the same.
The rationale for investment
- The company is around since 2000 and is a stable company and a leader among private insurance companies
- Life insurance penetration in India will continue to grow as it is still behind global benchmarks
- Private insurers have steadily won more market share against LIC
- In Buffett terms, insurance companies enjoy "float" which means they collect premiums first and have to pay dues only when claims are raised by people. The company can meanwhile invest this float and earn returns, like all insurance companies do. The company has strong "Free Cash Flow" , a measure of shareholder value creation
- It has decent managment and pedegree
- At the moment it is the only listed pure play life insurance co. It may at some point become part of Nifty index, etc. Also MFs looking for sectoral diversification may have to buy it. Due to these reasons, some more institutional buying of the stock may happen over the long term.
Risks
- It is relatively expensive right now (July 2017) at a PE of 40. Thus there may not be any immediate 1-2 year gains
- Like many financial stocks, it may fall 40-50% in case of a market crash.
- More than 70% of the insurance product it sells are ULIPs i.e. Unit Linked Insurance Plans. In case of a long-term market correction, customer interest in ULIPs may also fall.
Disclosure: The author is invested in this company.
Disclaimer: This is not a recommendation for investment. The author is not a financial adviser. Do your own research before investing in any securities.
