Mumbai: Analysts are sceptical about the prospects of general insurer New India Assurance Co. Ltd’s (NIA) Rs9,600 crore initial public offering (IPO) and have questioned the steep valuation of the stock given the relatively lower returns the general insurer offers.
State-owned NIA launches its Rs9,600 crore IPO on Tuesday, and is the second largest such offer this year after General Insurance Corp. of India Ltd’s Rs11,372 crore IPO. The insurance company has set a price band of Rs770-800 per share for the IPO, which values it at Rs64,392-67,940 crore. The offer will close on 3 November.
“It is very expensive. We are asking investors to avoid the issue," said Vidhi Shah, an analyst at Prabhudas Lilladher Pvt. Ltd.
According to Shah, while ICICI Lombard came in at 45- 46 times FY17 price to earnings (P/E), this issue is coming in at 75-78 times FY17 P/E . Also in terms of operating metrics and investment yield, ICICI Lombard is better placed than New India Assurance.
Others shared the view.
“Firstly It is slightly expensive. Also, the company is posting operating losses for a while," said an analyst with a domestic brokerage firm, who did not wish to be named.
“RoEs (return in equity) have been single digits for the 4-5 years," he added.
According to the company’s red herring prospectus filed with the markets regulator, NIA’s return on equity (RoE) stood at 8.6% for the fiscal year 2016-17, compared to private peers ICICI Lombard General Insurance Co. Ltd and Bajaj Allianz General Insurance’s 20.3% and 23.1%, respectively.
It reported operating profit, for only one out of five fiscal years to 2017. For the fiscal year 2016 and 2017, the company reported an operating loss of Rs. 877.65 crore, and Rs. 486.03 crore, respectively.
Incorporated in 1919, NIA offers insurance products in key business verticals such as fire insurance, marine insurance, motor insurance, crop insurance and health insurance.
The company’s gross written premium increased at a compound annual growth rate of 15.18% from Rs13,200.18 crore in fiscal 2013 to Rs23,230.49 crore in fiscal 2017.
In 2016-17, the company reported a revenue of Rs20,471.39 crore, up 16% from the previous fiscal. The company reported a profit of Rs839.86 crore in 2016-17, down 9% from a year earlier.
“It is very expensive. Also, when the other insurance IPOs are not doing as well, it does not make sense to invest in this one. I recommend investors to stay away from this IPO," said independent analyst Ambareesh Baliga.
Prior to NIA, three other insurance IPOs that hit the market earlier this year.
Share of General Insurance Corp. of India Ltd. and SBI Life Insurance Co. Ltd. are currently trading below their respective issue prices, while those of ICICI Lombard General Insurance Co. Ltd’s are trading 3.6% higher than the issue price.