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Oct 11, 2017 09:00 AM IST | Source: Moneycontrol.com

Brokerage View: GIC Re’s IPO opens. Should you subscribe to the issue?

Brokerages largely recommend subscribing to the issue, considering the penetration potential of insurance services in the country.

Brokerage View: GIC Re’s IPO opens. Should you subscribe to the issue?

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GIC Re wil open its initial public offering (IPO) on October 11 and is looking to raise Rs 11,370 crore through the same. The offer will close on October 13.

The IPO consists of a primary issue of 17.20 million equity shares by GIC Re and offer for sale of 107.50 million equity shares by the government. GIC Re is a government-owned reinsurance company. The price band for the issue is Rs 855 to Rs 912.

Alice G Vaidyan, Chairman and Managing Director of GIC Re, said that going forward, they will be open to inorganic growth opportunities. “We are also looking to grow our international business and will be expanding in the life reinsurance space globally,” she added.

The reinsurer had a gross premium of Rs 33,741 crore and a profit after tax of Rs 3,141 crore in FY17. Bankers said that the huge market share and the fact that they did not have any major competitor in India has led to these valuations.

A discount of Rs 45 on the offer price is being offered to retail individual bidders and to eligible employees bidding in the employee reservation portion.

Brokerages largely recommend subscribing to the issue, considering the penetration potential of insurance services in the country.

Reliance Securities | Subscribe

The brokerage house said that the company is expected to continue its healthy performance, as re-insurance market is expected to reach at Rs 700 billion by FY22E.

“Though GIC Re does not have any comparable peer in India, it stands forth among similar global players in terms of premium growth, net expense ratio and investment yield,” the report noted.

It also expects this business to get further traction on the back of increasing awareness among farmers about Fasal Bima Yojana as this segment has consistently been growing at rapid pace for last two years.

The brokerage believes that the valuations are reasonable and attractive against ICICI Lombard despite generating same quantum RoE.

IIFL Wealth Management | Subscribe

IIFL believes that the company’s gross premium growth should remain sturdy in the coming years due to growth in Indian non‐life insurance industry, expanding reinsurance market and tapping of new global markets including the largest ones.

“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,” the report added.

Way2Wealth | Rating: Subscribe

The brokerage highlighted financials of healthy combined ratio in Q1 at 92% & solvency ratio of 1.83 against statutory requirement of 1.5. Apart from that GIC has reported healthy ROE of 16-20% over the last 3 years, it highlighted.

“Globally re-insurance companies trade in the range of 1.0-1.4x P/BV. At the price band of Rs855-912/- the issue commands a valuation of ~1.6x its FY17 book value of Rs 500 billion. Given the higher growth prospects vs. peers globally we believe the issue is attractively priced and advise investors with a long term investment horizon to subscribe to the issue,” the report added.

Angel Broking | Subscribe

Speaking on the valuations, Angel Broking said that the issue is offered at 25x its FY2017 EPS and 4x its FY2017 book value (Pre-IPO).

“The agriculture GP has grown aggressively over the last 3 years largely due to the initiatives taken by the Government and it contributed 29% of GP in FY2017 (4% in FY2014). However, 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,” the report noted.

Having said that, positives such as leadership position, well managed investment book, robust balance sheet and reasonable valuations provide comfort and hence it recommends investors to subscribe to the issue.

Prabhudas Lilladher | Subscribe

The brokerage house highlighted that the company enjoys strong capital position with solvency ratio of 2.4x.

“At the upper band of Rs 912, the company trades at 27.4x Mar‐17 EPS which we believe is fairly priced, but given the liquidity in the markets and company’s performance in the recent past, we recommend to Subscribe for long term gains,” the report added.
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