ICRA Nepal has assigned a grading of [ICRANP] IPO Grade 4, indicating below average fundamentals, to the proposed initial public offering (IPO) of NPR 600 Million of Prabhu Life Insurance Limited (PLIL). PLIL is proposing to come out with an IPO of 6,000,000 equity shares with a face value of NPR 100 each, at par. The proposed issue is being launched to meet the minimum capital requirement for life insurers rolled out by the regulator, Insurance Board of Nepal.
The grading factors in the improving outlook for life insurers, as reflected by the healthy growth in the industry’s gross premium earnings in the last one to two years and better returns on the investment portfolios of the companies. The grading also factors in PLIL’s good ownership profile and sharing of established brand in Nepal as ‘Prabhu’. Similarly, a high proportion of the endowment business in the overall premium earnings (~94% in FY2019) and adequate reinsurance arrangements including the catastrophic provision also remain grading positives. Further, the grading considers an adequate franchise network (82 outlets across the country as of mid-October 2019), experienced management team, a robust agency force, and the relatively unpenetrated insurance market, which offers adequate growth potential.
However, the grading remains constrained by PLIL’s limited track record (operating since December 2017) and small scale of operations (~5% share among 10 new players and <1% share in the industry in terms of premium earnings in FY2019). Further, the management’s ability to achieve sustainable growth amid intense competition remains to be seen. The grading is also constrained by PLIL’s moderate policy continuation rate despite the initial years of operations (~71% renewal in FY2019 in terms of premium). Due to PLIL’s small asset base and life fund at present, its ability to generate returns on a sizeable equity base remains moderate. The grading also remains constrained by the fragmented nature of the industry and increasing competition (19 LICs in Nepal).
Prabhu Life Insurance Limited (PLIL) is a public limited life insurance company (LIC), operating since December 2017. Its head office is in Kamaladi, Kathmandu. PLIL has been established with Nepalese capital with the promoters including Nepalese banks, merchant bankers, investment management companies, insurance company and high net-worth individuals. On an overall basis, institutions hold 60% share and rest by the individuals. Prabhu Group hold majority stake in the company (considering both, the institutions under the Group and the individuals).
PLIL is a new player in the life insurance industry of Nepal. Along with nine other LICs, PLIL was licensed by the Insurance Board in 2016/17, taking the total number of life insurers to 19 from nine. As of mid-October 2019, the company has been in operations with 82 branches, 6,041 individual agents and 18 corporate agents spread across the nation for procuring new business and extending after-sales services.
PLIL’s total paid-up capital was NPR 1,400 Million as of mid-October 2019 and will reach NPR 2,000 Million after the public issuance. Post the IPO, the promoter/public shareholding will be 70:30. PLIL reported a profit after tax of ~NPR 74 Million for FY2019 on a total asset base of ~NPR 1,982 Million as of mid-July 2019, compared to profit after tax of NPR 43 Million in FY2018 on a total asset base of NPR 1,587 Million. The company garnered profit of ~NPR 12 Million during 3MFY2020 on the total assets base of NPR 2,040 Million as of mid-October 2019.
Source: ICRA Ratings Nepal