GIC Re’s Rs 11,370-crore IPO subscribed 72% on Day 1; here's what top brokerages say
, ETMarkets.com|
Updated: Oct 11, 2017, 01.00 PM IST
NEW DELHI: The initial public offer (IPO) of General Insurance Corporation of India (GIC Re) kicked off on a strong note as the issue got subscribed 72 per cent within the first few hours of the bidding process on Day 1 on Wednesday.
This would be India's third biggest IPO ever after Coal India's Rs 15,200 crore and Reliance Power's Rs 11,700 crore issues.
The issue received bids for 8,88,39,152 shares as against 12,47,00,000 shares on offer.
Qualified Institutional buyers quota was subscribed 1.41 times, retail was subscribed 2 per cent, while other segments saw negligible subscription till 1 pm on Wednesday.
The reinsurer is selling 12,47,00,000 shares in Rs 855-912 price band in the IPO that will conclude on October13. The offer would constitute 14.22 per cent of the post-offer paid-up equity share capital. The company said it will offer a discount of Rs 45 per shares to retail investors and eligible employees. Investors can bid for a minimum of 16 shares and in multiples of 16 thereafter.
GIC Re intends to utilise the net proceeds of the fresh issue towards augmenting the capital base of the corporation to support the growth of the business and to maintain current solvency levels and General corporate purposes, subject to applicable law.
Here's what top brokerages said on the issue
Reliance Securities
The brokerage expects GIC Re to continue with its healthy performance, given the re-insurance market is pegged to growth at 14 per cent compounded annually to Rs70,000 over FY17-FY22E.
GIC stands at number four among similar global players in terms of premium growth, net expense ratio and investment yield.
"The business may get traction on increasing awareness among farmers about Fasal Bima Yojana. We believe valuations of 4 times P/B of FY17 and 26.6 times diluted FY17 earnings appear reasonable and attractive compared with ICICI Lombard’s P/B of 8.1 times and 46.7 times PE, despite generating same quantum of return on equity," it said.
IIFL Wealth
Gross premium growth for GIC Re should remain sturdy in the coming years owing to sustained brisk growth in Indian non‐life insurance industry, expanding reinsurance market in India and tapping of new global markets including the largest ones, IIFL Wealth said in a note.
"The potent combo of likely inroads into global market along with better pricing in domestic market should further improve the combined ratio in the medium term, save for any untoward loss. At the IPO price of Rs912, GIC Re is reasonably valued at 3.6 times P/BV on a post money basis. The valuation, inclusive of Fair Value Change Account (FVCA), drops to 1.5 times P/BV," it said.
Angel Broking
The agriculture segment's gross premium (GP) has grown aggressively over the last three years, driven by government initiatives. The segment contributed 29 per cent of total gross premium collected in FY2017 against mere 4 per cent in FY2014.
"The financials of the company may get affected adversely if India witnesses bad monsoon or successive poor monsoon seasons, drought, flooding or other catastrophic events impacting the Indian agriculture industry," Angel Broking said.
"Nonetheless, positives such as leadership position, well managed investment book, robust balance sheet and reasonable valuations provide comfort," it added.
Centrum Broking
Centrum Broking said the issue appears fairly priced, considering a return ratio of 16 per cent (RoE) and PAT CAGR of 5.7 per cent over FY13-17.
"GIC has healthy financials with Incurred Claims ratio of 81.6 per cent, combined ratio of 100.2 per cent and solvency ratio of 2.41 times as on March 31. GIC being a leading reinsurer in India could continue to see a stable growth. However, given the full valuation and size of the issue, the stock is expected to give returns only in the long term," the brokerage said.
Prabhudas Lilladher
This brokerge said that return on equity (RoE) of the reinsurer is likely to stay at around 15‐18 per cent on high investment income and better operating efficiency. The company has robust payout ratio, Prabhuads Lilladher said.
"GIC Re continues to make better investment yields on domestic investment assets. Besides, it earns fixed income on foreign investment assets. GIC Reloss and combined ratios have seen good improvement, as the reinsurer grows its business in profitable segments such as agriculture coupled, and introduce technology platforms to enable it to operate at lower costs," the brokerage said.
This would be India's third biggest IPO ever after Coal India's Rs 15,200 crore and Reliance Power's Rs 11,700 crore issues.
The issue received bids for 8,88,39,152 shares as against 12,47,00,000 shares on offer.
Qualified Institutional buyers quota was subscribed 1.41 times, retail was subscribed 2 per cent, while other segments saw negligible subscription till 1 pm on Wednesday.
The reinsurer is selling 12,47,00,000 shares in Rs 855-912 price band in the IPO that will conclude on October13. The offer would constitute 14.22 per cent of the post-offer paid-up equity share capital. The company said it will offer a discount of Rs 45 per shares to retail investors and eligible employees. Investors can bid for a minimum of 16 shares and in multiples of 16 thereafter.
GIC Re intends to utilise the net proceeds of the fresh issue towards augmenting the capital base of the corporation to support the growth of the business and to maintain current solvency levels and General corporate purposes, subject to applicable law.
Here's what top brokerages said on the issue
Reliance Securities
The brokerage expects GIC Re to continue with its healthy performance, given the re-insurance market is pegged to growth at 14 per cent compounded annually to Rs70,000 over FY17-FY22E.
GIC stands at number four among similar global players in terms of premium growth, net expense ratio and investment yield.
"The business may get traction on increasing awareness among farmers about Fasal Bima Yojana. We believe valuations of 4 times P/B of FY17 and 26.6 times diluted FY17 earnings appear reasonable and attractive compared with ICICI Lombard’s P/B of 8.1 times and 46.7 times PE, despite generating same quantum of return on equity," it said.
IIFL Wealth
Gross premium growth for GIC Re should remain sturdy in the coming years owing to sustained brisk growth in Indian non‐life insurance industry, expanding reinsurance market in India and tapping of new global markets including the largest ones, IIFL Wealth said in a note.
"The potent combo of likely inroads into global market along with better pricing in domestic market should further improve the combined ratio in the medium term, save for any untoward loss. At the IPO price of Rs912, GIC Re is reasonably valued at 3.6 times P/BV on a post money basis. The valuation, inclusive of Fair Value Change Account (FVCA), drops to 1.5 times P/BV," it said.
Angel Broking
The agriculture segment's gross premium (GP) has grown aggressively over the last three years, driven by government initiatives. The segment contributed 29 per cent of total gross premium collected in FY2017 against mere 4 per cent in FY2014.
"The financials of the company may get affected adversely if India witnesses bad monsoon or successive poor monsoon seasons, drought, flooding or other catastrophic events impacting the Indian agriculture industry," Angel Broking said.
"Nonetheless, positives such as leadership position, well managed investment book, robust balance sheet and reasonable valuations provide comfort," it added.
Centrum Broking
Centrum Broking said the issue appears fairly priced, considering a return ratio of 16 per cent (RoE) and PAT CAGR of 5.7 per cent over FY13-17.
"GIC has healthy financials with Incurred Claims ratio of 81.6 per cent, combined ratio of 100.2 per cent and solvency ratio of 2.41 times as on March 31. GIC being a leading reinsurer in India could continue to see a stable growth. However, given the full valuation and size of the issue, the stock is expected to give returns only in the long term," the brokerage said.
Prabhudas Lilladher
This brokerge said that return on equity (RoE) of the reinsurer is likely to stay at around 15‐18 per cent on high investment income and better operating efficiency. The company has robust payout ratio, Prabhuads Lilladher said.
"GIC Re continues to make better investment yields on domestic investment assets. Besides, it earns fixed income on foreign investment assets. GIC Reloss and combined ratios have seen good improvement, as the reinsurer grows its business in profitable segments such as agriculture coupled, and introduce technology platforms to enable it to operate at lower costs," the brokerage said.
