The country's largest general insurance firm New India Assurance Company, which recently concluded its initial public offer, will be making its stock market debut on Monday, November 13, and most likely at a discount or to a slight premium.
The Rs 9,600-crore IPO was oversubscribed 1.19 times during November 1-3. The portion set aside for qualified institutional buyers (QIBs) was oversubscribed 2.34 times, non-institutional investors 12 percent and retail investors 11 percent, according to data available with the NSE.
The IPO was fully priced and slightly towards premium valuations. Investors who are hoping for a robust listing might be disappointed. However, it is still a good bet for long-term investors.
“I think the listing of the stock may be at a discount price. The issue seems to be fully priced, which is clearly reflected when we compare its valuation with its recently listed peers like ICICI Lombard General Insurance,” Sanjeev Jain, AVP - Equity Research at Ashika Stock Broking Ltd told Moneycontrol.
At the upper price band of Rs 800, its P/E works out to be 75x on its FY17 EPS of Rs 10.72, and the price-to-book value (P/B) including fair change account is 1.6x and excluding fair change account is 4.3x.
Whereas, ICICI Lombard is quoting at a P/E of 38x and at a P/B of 7.2x including fair change account and 7.5x excluding fair change account.
“For a long-term perspective, one can stay invested in the company. The kind of growth the company has shown in its financials over the last several years provides ample scope for the company to grow its business portfolio at a faster pace,” said Jain.
New India Assurance which is the largest general insurance company in India and a leader across segments has assets of over Rs 69,000 crore and has been growing at CAGR of over 15 percent for the last five years.
Although most brokerage firms recommended a ‘Subscribe’ rating to NIA citing good business potential, highlight valuation concerns as well.
“We see a lackluster listing for New India Assurance as the same was sold to investors at very high valuations leaving no listing gains on the table. When compared to other listed private sector peers the IPO was overpriced by some 40 percent,” Jimeet Modi, CEO, Samco Securities told Moneycontrol.
“Below average operating parameters, single digit ROE will lead to stock price correcting handsomely post listing. Bottom fishing should be avoided during first few initial days after listing,” he said.
Good long-term bet?
The NIA might list at a discount to a slight premium but it is a good long-term bet as the future looks promising for the insurance industry with several changes in the regulatory framework.
“New India Assurance Company has been the leader and has the largest market share in its business. However, its RoNW (Return on Net Worth) is 7.6 percent which is lower than its peer in listed place ICICI Lombard which has RoNW of 16 percent,” Anita Gandhi, Whole Time Director at Arihant Capital Markets told Moneycontrol.
“Considering its leadership there is the possibility of marginal premium. However, a recent listing of GIC Re was disappointing. Outlook on the insurance sector for India as a whole is positive going forward & more such listings are possible going forward,” she said.
The insurance sector can witness high growth as more awareness about the product and risk cover as well as the shift of savings to financial assets accelerates over the next decade.
NIA is the largest general insurance company in India and a leader across segments, growing business over the next couple of years will not be a challenge, suggest experts.
“Taking a gauge at the renowned position in the industry, NIA (New India Assurance Company) is expected to continue its robust performance. Though it seems at a premium, investors may look at the fundamentals of the company for long-term horizon,” Dyaneshwar Padwal, AVP – Technical Analysis, KIFS Trade Capital told Moneycontrol.
“The future looks promising for the insurance industry with several changes in the regulatory framework which will lead to further change in the way the industry conducts its business and engages with its customers. 20 percent of Compound Annual Growth Return (CAGR) is anticipated industry wise over the next few years which is currently at 17 percent,” he said.