New India Assurance (NIA) IPO opens tomorrow for subscription as India’s second public offer of a general insurance company. The IPO, priced in the range of INR770 – 800 per share, will raise INR9,600 crore at the upper end of the price band. Brokerage houses and analysts have come up with their research reports and New India IPO recommendations are a mixed bag. While some analysts have justified the high valuations of the IPO to the company’s market leadership and positive industry outlook, others are of the view that the stock can be purchased at lower levels after listing. Here is a snapshot of New India IPO recommendations.
Ashika Stock Broking has a positive view on the upcoming IPO. “Its FY17 EPS is Rs.10.72 and 3 year average EPS is Rs.13.48. At the upper price band of Rs.800, P/E and works out to be 75x; based on last 3 years restated EPS of Rs.13.48, P/E ratio works out to be 59x. Its P/B including fair change account is 1.6x and excluding fair change account is 4.3x. Its only listed peer 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. Thus, the issue appears to be fully priced. The sector looks attractive going forward. CRISIL forecasts the gross direct premium for general insurers to grow at a CAGR of 15-20% over the next 5 years. Considering all these aspects, we recommend our investors to “SUBSCRIBE” the issue from a long term perspective, as the company justifies premium valuation given its market leadership in general insurance category and bright prospects of the overall general insurance sector in the future,” said the firm’s research note.
ICICIdirect.com has advised investors to exercise caution and subscribe only for long term. “At the IPO upper price band of | 800, the stock is available at a P/B multiple of 4.3x FY17 (post issue) networth excluding fair value change. Post issue market capitalisation is at INR64,000 crore at the upper band. Being slightly expensive with high combined ratios, we believe on should subscribe only from a longer term view and not for the purpose of accruing listing gains,” the research firm noted in its IPO note.
GEPL Capital has a subscribe rating on New India Assurance IPO, although it believes the insurance player demands a discount to its domestic peers. “The New India Assurance Co. Ltd (NIA) stands to gain from operating leverage. At a P/BV of 2.4xs of FY17 book value, we believe that NIA demands a discount to its domestic peers. We assign a Subscribe rating to the IPO,” said GEPL Capital’s research report.
New India IPO recommendations: Caution to be exercised
Angel Broking cited the company’s high combined ratio behind the low profitability. “At the upper price band of `800 the issue is offered at 5x FY2017 book value and 76x FY2017 EPS. Its listed peer ICICI Lombard is trading at 8x FY2017 book value and 48 times FY2017 EPS. ICICI Lombard reported decent ROE of 17% and average ROE for last 5 years is 19%, while NIA reported subdued ROE of 7% for FY2017 and average ROE of 9%. NIA’s combined ratio is consistently higher than 115%, which is impacting the profitability of the company. Considering the subdued ROE, inconsistent PAT and higher combined ratio, we recommend NEUTRAL rating on the issue,” said the broking form in its IPO note.
Prabhudas Lilladher also finds New India Assurance IPO expensive when compared to ICICI Lombard. “It is very expensive. We are asking investors to avoid the issue,” said Vidhi Shah, an analyst at Prabhudas Lilladher.
Choice Broking pointed out that despite being a market leader, the operating metric and financial performance of the company is not encouraging and it has reported operating losses in four out of five years. “Going forward, due to its dominant market position, the company would benefit from the growth in the industry and favorable government policies. Improvement in the operating performance of the health and motor insurance will be one of the key factors which will be keenly watched by the investors. However, it would take some time to materialize. Thus considering the above observations, we assign a “Subscribe with Caution” rating for the issue. We feel that that the investors can enter in this script at a lower price post listing and can hold it for a long period for better returns,” noted the Mumbai-based brokerage house.
While analysts are divided in New India IPO recommendations, it helps to know that the IPO is not traded in the grey market.