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New India Assurance IPO Oversubscribed. Should You Invest?

New India Assurance IPO subscription finished Day 1 on a strong note.

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New India Assurance IPO Oversubscribed. Should You Invest?

The share price is in a band of Rs 770 to Rs 800


The Rs 9600 crore IPO of government-owned New India Assurance, the largest general insurance company in the country, hit the Street on Wednesday. And it saw strong response on Day 1 and was fully subscribed. On Day 2, till 11:30 am, the issue was subscribed 1.05 times. New India Assurance's IPO is a mix of offer for sale and fresh issue. The issue constitutes fresh issue worth of Rs 1,920 crore and offer for sale worth of Rs 7,680 crore. After the offer, promoter holding will come down to 85.4 per cent. In the IPO, New India Assurance is selling 12 crore equity shares which consists of fresh issue of up to 2.4 crore shares and offer for sale of up to 9.6 crore shares by the government.

New India Assurance IPO - Share Price 


Shares are sold at a price band of Rs 770 to Rs 800.

Investors can apply up to a maximum of Rs 2 lakh in the retail category and above Rs 2 lakh in the non- institutional (HNI) category.

Lot Size


Investors can apply in lot size of 18 shares and in multiples thereafter.

New India Assurance - Company Profile


New India Assurance provides insurance across fire, marine, aviation, motor crop, health, and other insurance. The company has been in operation for almost a century. According to CRISIL Research, in FY17, it had largest market share of 15 per cent of gross direct premium among general insurers in India. It issued 27.10 million policies in FY17, highest among all general insurance companies in India.


Financials


According to Angel Broking, New India Assurance has been able to grow its net premium by steady CAGR of 16 per cent over FY2013-17. "But on profitability front it has been reporting very inconsistent PAT, which has declined 2 per cent CAGR over FY2013-17 (PAT for FY2013 - Rs 914 crore, FY2014 - Rs 805 crore, FY2015 - Rs 1,377 crore, FY2016 - Rs 930 crore and FY2017 - Rs 840 crore). On the contrary, other listed general insurance company ICICI Lombard has grown its net premium at CAGR of 15 per cent over FY2013-17. However, PAT grew at healthy CAGR of 22 per cent over FY2013-17," the brokerage said.

Combined Ratio


"The combined ratio is a measure of the profitability of an insurance company's underwriting business. Combined ratio is the sum of loss ratio, expense ratio and commission ratio. A ratio below 100 per cent usually indicates that the insurance company generates a margin in its insurance operations, while a ratio above 100 per cent usually indicates that insurance company is paying out more money in claims and operating expenses than it is receiving from premiums. New India Assurance's combined ratio consistently remained high for last 5 years at more than 115 per cent and for FY2017 company reported combined ratio of 120 per cent," according to a note from Angel Broking.

What Brokerages Say On New India Assurance IPO


Angel Broking has a neutral rating on the issue. "At the upper price band of Rs 800 the issue is offered at 5 times FY2017 book value and 76 times FY2017 EPS. Its listed peer ICICI Lombard is trading at 8 times FY2017 book value and 48 times FY2017 EPS. ICICI Lombard reported decent ROE of 17 per cent and average ROE for last 5 years is 19 per cent, while New India Assurance reported subdued ROE of 7 per cent for FY2017 and average ROE of 9 per cnet. NIA's combined ratio is consistently higher than 115 per cent, which is impacting the profitability of the company. Considering the subdued ROE, inconsistent PAT and higher combined ratio, we recommend neutral rating on the issue," the brokerage says.

Motital Oswal has a subscribe rating on New India Assurance IPO. "We remain positive on the company due to 1) Longstanding global footprint and successful international operations, 2) Diversified product offering and innovation capability, 3) Multi-channel distribution network and 4) strong solvency ratio. At upper price band, the issue is priced at price/book of 5.1x post issue (and 5x FY17 pre issue). We recommend subscribe for long term investment," says Motilal Oswal in a note.

Risk Factors


ICICIDirect.com in a note has highlighted the following risk factors for New India Assurance:

Inability to maintain market share or effectively address the requirement of customers

Any termination or adverse change in relationship or arrangement with brokers, bancassurance partners or other distribution intermediaries

An inability to compete in the highly competitive insurance industry

Catastrophic events, including natural disasters, may result in significant liabilities for claims by policyholders


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