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Nov 01, 2017 08:21 AM IST | Source: Moneycontrol.com

New India Assurance IPO opens. What are brokerages saying about the issue?

Brokerages recommend subscribing to the issue citing good business potential, but highlight valuation concerns as well.

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The primary market will see a new entrant in New India Assurance, which opened Wednesday. The company plans to raise estimated Rs 10,000 crore through the IPO. The issue will close on November 3.

The IPO comprises sale of 9.6 crore shares by the government, besides fresh issue of 2.4 crore shares. Thus, a total of 12 crore shares of the non-life insurer would be sold through the share sale offer, constituting around 14.56 percent of the company's post issue share capital.

New India Assurance is expected to list on the stock exchanges on November 13, merchant banking sources said.

Axis Capital, Yes Securities, Nomura Financial Advisory and Securities (India) Pvt Ltd, IDFC Bank and Kotak Mahindra Capital Company are managing NIA's IPO.

Brokerages recommend subscribing to the issue citing good business potential, but highlight valuation concerns as well.

KR Choksey | Subscribe

The brokerage house believes growth drivers are already in place to support the company as indicated by low penetration, rising income levels, rise in sales of new vehicles and increasing coverage of insurance. “Plus, a solvency ratio of 2.2x (against a regulatory minimum of 1.5x) places the company in a comfortable position to pursue growth going forward,” the brokerage said in its report.

While the issue looks expensive, but future growth potential of general insurance and given the company’s market leadership position, reputation and strong brand name, the brokerage recommends subscribing to the issue.

Geojit | Subscribe

Geojit said the company enjoys a strong capital position with a solvency ratio of 2.22x as of FY17 compared to the IRDAI specified control level of 1.5x. “India continues to be an underpenetrated market with a general insurance penetration of 0.8 percent versus global average of 2.8 percent. This provides enough growth headroom to Indian non-life insurers,” the brokerage house said in its report.

In terms of valuations, the issue is priced at a price to earnings (P/E) of 32x on Q1FY18 EPS and price to book (P/B) of 4.3x on Q1FY18 book value. “We believe the issue is reasonably priced considering its robust financial position, pan-India reach and bright growth prospect of the overall general insurance sector in the future,” the report added.

ICICI Securities | Subscribe

The brokerage spoke on the valuations and said that being slightly expensive with high combined ratios, we believe one should subscribe only from a longer term view and not for the purpose of accruing listing gains.

Reliance Securities | Subscribe

Reliance Securities pointed out that the firm has been successfully maintaining its leadership position in non-life insurers through various cycles of industry evolution. It expects to deliver strong performance on the back of lower general insurance penetration in India.

The brokerage subscribing to the Issue as it provides a healthy investment opportunity for the long-term investors.

Centrum | Avoid

Centrum said that the issue appears expensive considering a very low return ratio of mere 6.8 percent RoE, operating loss of ₹901 crore and declining net profit. “In comparison private players in the general insurance space have better growth rates and RoEs of close to 20 percent,” the report added.

While the company holds leadership position, it is difficult to justify its valuation due to weak fundamentals, it said.
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