New India Assurance Co Ltd - IPO Note - CSEC Research

Objects of the Offer

- The offer comprises of 120mn shares, of which only 24mn shares constitute fresh issue & the rest (96mn shares) are offered for sale. Of the entire issue 3.6mn are reserved for eligible employees.

- The company proposes to utilize the net proceeds from the fresh issue towards meeting future capital requirements which are expected to arise from the growth and expansion of the business and improving their solvency ratio.

Key Positives

- Despite increasing competition from private players, NIA has maintained market leadership in the general insurance industry in India across all segments except crop insurance during FY13-17.Their market share in terms of the gross direct premium, in FY17 is fire (19.1%), engineering (21.9%), aviation(29.6%), liability(18.2%), marine(21.0%), motor (15.1%) and health(18.4%).

- During FY13-17, NIA's gross written premium and net premium earned increased at a CAGR of 15.18% to INR 232.3bn and 16.5% CAGR to INR 176.75bn, respectively.

Risks

- NIA has incurred operating losses in 4 out past 5 years (baring FY15), despite being the leader in market share in terms of gross premium earned. In FY17 operating losses stood at INR 9.01bn. The operating profit margins were, -5.1%,-3.51%, 0.38% in FY17, FY16 and FY15 respectively.

- The overall combined ratio for the company has increased from 115.59% in FY15 to 119.73% in FY17.

Valuation:

We are positive on the long term prospects of the industry, company's strong balance sheet, good cash flows, diversified revenue & investment portfolio and experienced management team. At the upper price band, NIA is valued at a reasonable 2.84X Price / Gross direct premium. We recommend a SUBSCRIBE to the issue.

Source : Equity Bulls

Keywords