State-owned non-life insurer New India Assurance will launch its Rs 9,600 crore IPO on Wednesday. The price band has been fixed at Rs 770 to Rs 800 per share. A discount of Rs 30 on the offer price is being offered to retail individual investors and staff. The issue close on Nov. 3.

The IPO will comprise 12 crore shares, of which there is a fresh issue of up to 2.4 crore equity shares and an offer for sale of up to 9.6 crore equity shares. At the upper end of the price band, the IPO will fetch the government Rs 7,680 crore, while the insurer could reap a gain of Rs 1,920 crore. The offer shall constitute 14.56 percent of the post-offer paid-up equity capital. At Rs 9,600 crore for a 14.56 per cent stake, the company has been valued at almost Rs 66,000 crore.

At the higher end of the price band of Rs 800, the issue is priced at 5.2 times its FY17 book value and at 1.8 times its book value (including fair value change account) and 76 times the FY17 earnings per share. Its listed peer ICICI Lombard is trading at eight times the FY17 book value and 48 times FY17 EPS. Over FY13-17, while the net premium earned witnessed a 16.5 per cent annual growth (CAGR) to Rs 17,675 crore, the company has incurred operational losses and had declining net profits, over the years. In FY17, New India Assurance incurred an operating loss of Rs 901 crore against a loss of Rs 32 in FY13. Net profit for FY17 stood at Rs 840 crore, down 10 per cent versus Rs 930 crore in FY16. Also, the return ratio has been declining to mere 6.8 per cent versus 7.8 per cent in FY16 and 12.3 per cent in FY15.

The combined ratio has  remained high for the last five years at more than 115 per cent and for FY17, the the ratio was 120 per cent versus 104 per cent for ICICI Lombard General Insurance. “The issue appears expensive considering a very low return ratio of mere 6.8 per cent RoE, operating loss of Rs 901 crore and declining net profit. In comparison private players have better growth rates and RoEs of close to 20 per cent,” said Payal Pandya, research analyst, Centrum Wealth Research.

In the non-life insurance industry, if one looks at other insurers, during FY17, Bajaj Allianz General Insurance has an RoE of 23.1 per cent, Iffco Tokio 29 per cent, ICICI Lombard General 20.3 per cent and HDFC Ergo, 19.2 per cent.

falaknaazsyed@mydigitalfc.com