Abhinav Sharma

ICICI Bank Limited: A Clear Buy

The break up of the 40k crores ($10 bn) that the value of ICICI Holdings is supposed to become:

1) ICICI Prudential Life Insurance - 74% stake valued at $6 billion, value of firm around $8 billion. Company has been making losses since the very beginning (around $150 million for FY07). Compared to that, Bajaj Allianz has a profit of $15 million. Most of the money is flowing in through unit linked and equity schemes which is totally dependent on the equity market movement. Result: a drop in broader market means losses on equity schemes plus lower inflows and subsequently, lower value of the firm.

2) ICICI Lombard General Insurance - 74% stake valued at $3 billion, value of firm around $4 billion. Has an equity capital of Rs. 350 crores right now. Now, this company had insurance premium of Rs. 3k crores. The entire market for general insurance is Rs. 25k crores (12% market share). It may be capped at 25% market share in 4 years' time, and assuming market size to double its premium would be Rs. 12.5k crores. Current net worth is less than Rs. 1k crores. There has been underwriting losses since inception and the only source of profitability has been its investment books. Now, are you guys really sure this company could be worth Rs. 16500 crores???

3) ICICI Prudential Asset Management Company - 55% stake valued at $1 billion, which means value of firm to be around $1.8 billion. Assets under management are around $10 billion, which means you are paying 18% of AUM as the valuation of this company.

How long would you be willing to wait till you actually seek alpha in ICICI Holdings.
I rest my case.
comments are invited from anyone who feels so bullish on India.