The New India Assurance Company Ltd - IPO Note - Angel Broking

The New India Assurance Company Ltd (NIA) is the leader in the non-life insurance in India, controlling hefty 15% market share in terms of gross direct premium (Rs. 23,230cr). It issued 27.10 million policies across all product segments. NIA is also market leader in Fire, marine, Motor & health insurance with market share of 19.1%, 21.1%, 15.1% and 18.4%, respectively. As of June 30, 2017, NIA distribution network in India included 68,389 individual agents and bancassurance arrangements with 25 banks in India. The company has developed a pan-India branch network. As on 1QFY2018, NIA had an investment book worth Rs. 55,028cr on which company has been able to generate yield of 8.1% for FY2017.

Positives: a) Established brand and market leadership in Fire, Marine, Motor & Health insurance; b) Longstanding global footprint and successful international operations; c) Multi-channel distribution network; d) Capitalizing on lower penetration of non-life insurance in India.

Investment concerns: a) Though NIA is market leader in terms of gross direct premium but it reports loss in the insurance business (unprofitable underwriting). The combined ratio has consistently remained high for last 5 years at more than 115% and for FY2017 company reported combined ratio of 120%; b) it has been reporting subdued ROE, average ROE for last 5 years is 9% and for FY2017 - 7%; c) Declining interest rate would impact interest income on debt investment.

Outlook & Valuation: At the upper price band of Rs. 800 the issue is offered at 5x FY2017 book value and 76x FY2017 EPS. Its listed peer ICICI Lombard is trading at 8x FY2017 book value and 48 times FY2017 EPS. ICICI Lombard reported decent ROE of 17% and average ROE for last 5 years is 19%, while NIA reported subdued ROE of 7% for FY2017 and average ROE of 9%. NIA's combined ratio is consistently higher than 115%, 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.

Source : Equity Bulls

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