IPO watch: Long-term investors may wait for New India Assurance to list
, ET Bureau|
Updated: Oct 30, 2017, 08.49 AM IST
ET Intelligence Group: New India Assurance Company (NIAC), the country's largest general insurance company, plans to hit the primary market to infuse capital and to enable the Government of India, the sole promoter, to sell part of its stake worth upto Rs 7,680 crore.
NIAC's price-book (PB) valuation is way cheaper but trailing price-earnings (PE) multiple is much higher than its listed peer, ICICI Lombard General Insurance Company (ILGIC). In addition, ILGIC has a more consistent net profit growth, lower combined ratio, and better return ratios. Given these factors, long-term investors may skip the IPO and consider buying NIAC's shares if valuation falls subsequently after the listing considering its leadership position and strong domain expertise.
BUSINESS
Incorporated in 1919, NIAC commanded 15% share of the country's general insurance market with gross direct premium income (GDPI) of `19,115 crore in FY17. Its product portfolio covers crop, fire, health, and motor among others. The company had 2,452 offices and 68,389 individual insurance agents in India in June 2017. It also has overseas operations in 28 countries contributing 14.2% to total gross written premium (GWP) in FY17.
FINANCIALS
The company had a lower operating expense ratio of 20.4% compared with 30.1% for ILGIC in FY17.However, the combined ratio, which includes expense ratio and the claims incurred relative to earned premiums, was higher for NIAC at 110.7% compared with 102.4% for ILGIC in the June 2017 quarter. In addition, NIAC's return on equity (RoE) was 6.8% compared with ILGIC's 17.2% in FY17.
NIAC's net profit has been volatile.In FY17, it was `839.9 crore compared with `913.9 crore in FY13. In contrast, ILGIC's profit grew to `641.8 crore from 352.8 crore during the pe riod. NIAC reported net profit of `513.3 crore in the June 2017 quarter, which was more than half of the FY17 profit. While the growth is significant, consistency in the coming quarters will be crucial.
VALUATION
NIAC's PB including fair value change account is 1.6 compared with 7.2 for ILGIC. However, NIAC's PE multiple based on FY17 earnings and post IPO equity is higher at 75.5 compared with 37.8 for ILGIC. NIAC's lower RoE, higher combined ratio, and profit variation compared with ILGILC may prompt investors to avoid the IPO.
NIAC's price-book (PB) valuation is way cheaper but trailing price-earnings (PE) multiple is much higher than its listed peer, ICICI Lombard General Insurance Company (ILGIC). In addition, ILGIC has a more consistent net profit growth, lower combined ratio, and better return ratios. Given these factors, long-term investors may skip the IPO and consider buying NIAC's shares if valuation falls subsequently after the listing considering its leadership position and strong domain expertise.
BUSINESS
Incorporated in 1919, NIAC commanded 15% share of the country's general insurance market with gross direct premium income (GDPI) of `19,115 crore in FY17. Its product portfolio covers crop, fire, health, and motor among others. The company had 2,452 offices and 68,389 individual insurance agents in India in June 2017. It also has overseas operations in 28 countries contributing 14.2% to total gross written premium (GWP) in FY17.
FINANCIALS
The company had a lower operating expense ratio of 20.4% compared with 30.1% for ILGIC in FY17.However, the combined ratio, which includes expense ratio and the claims incurred relative to earned premiums, was higher for NIAC at 110.7% compared with 102.4% for ILGIC in the June 2017 quarter. In addition, NIAC's return on equity (RoE) was 6.8% compared with ILGIC's 17.2% in FY17.
NIAC's net profit has been volatile.In FY17, it was `839.9 crore compared with `913.9 crore in FY13. In contrast, ILGIC's profit grew to `641.8 crore from 352.8 crore during the pe riod. NIAC reported net profit of `513.3 crore in the June 2017 quarter, which was more than half of the FY17 profit. While the growth is significant, consistency in the coming quarters will be crucial.
VALUATION
NIAC's PB including fair value change account is 1.6 compared with 7.2 for ILGIC. However, NIAC's PE multiple based on FY17 earnings and post IPO equity is higher at 75.5 compared with 37.8 for ILGIC. NIAC's lower RoE, higher combined ratio, and profit variation compared with ILGILC may prompt investors to avoid the IPO.
