New India Assurance IPO – Should you invest in this high priced IPO?

New India Assurance IPO Review - Should you invest in this IPO-minNew India Assurance IPO Review


New India Assurance IPO would open for subscription on 1st November, 2017. New India Assurance Ltd one of the leading general insurance company in India. Its revenues grew at 16% CAGR in last 5 years. It generated low margins of 4% for FY2017. Company is asking for issue price which is at 67x P/E where ICICI Lombard IPO shares listing was a disaster. What are the positive factors in New India Assurance Ltd IPO? What are the hidden factors in New India Assurance IPO? Is New India Assurance IPO Price is over priced? In this article, I would provide some interesting insights and do New India Assurance Limited IPO Review.

Also Read: Should you invest in 20 Upcoming IPOs in Nov/Dec-2017?

About New India Assurance Ltd


Company is the largest general insurance company in India in terms of net worth, domestic gross direct premium, profit after tax and number of branches as of and for the fiscal year ended March 31, 2017. Company has been in operation for almost a century. In Fiscal 2017, company had the largest market share of gross direct premium among general insurers in India. As of March 31, 2017, company had issued 27.10 million policies across all company product segments, the highest among all general insurance companies in India. As of June 30, 2017, company operations were spread across 29 States and seven Union Territories in India and across 28 other countries globally through a number of international branches, agency offices and Subsidiaries including a desk at Lloyd’s, London.

New India Assurance IPO Issue details


  • IPO open date: 1-November-2017
  • IPO close date: 3-November-2017
  • Face Value: Rs 5 per share
  • Issue price band: Rs 770 to Rs 800 per share
  • (Rs 30 discount per share is for retail / employees of the company)
  • Issue size: Approx Rs 9,600 Crores on higher price band
  • New India Assurance IPO Lot size:  18 shares and 18 shares there-off
  • Minimum investment: Rs 14,400
  • Leading Managers: Kotak Capital, Axis Capital, IDFC Bank, Nomura Financial Advisory, Yes Securities
  • Listing: BSE / NSE

Download New India Assurance IPO RHP Prospectus at this link.

Objects of the New India Assurance  Ltd IPO issue


The Offer comprises a Fresh Issue by Company and an Offer for Sale by the Selling Shareholder.

1) The Offer for Sale

The proceeds of the Offer for Sale shall be received by the Selling Shareholder. Company will not receive any proceeds from the Offer for Sale.

2) Objects of the Fresh Issue and requirement of funds

a) Offer related expenses

b) Company proposes to utilize the Net Proceeds towards meeting future capital requirements which are expected to arise from the growth and expansion of its business, improving solvency margin and consequently our solvency ratio.

Company Financials (reinstated-consolidated)


1) The company generated revenue of Rs 11,357 Crores for the year ended Mar-13 and Rs 20,553 Crores for the year ended Mar-17.  

2) The company posted a profit of Rs 913.9  Crores for the year ended Mar-13 and profit of Rs 839.8 Crores for the year ended Mar-17.

3) Its FY17 EPS is Rs 10.72  and 3 years average EPS is Rs 12.32.

 Consolidated Financial Summary of New India Assurance Limited IPO

Company Financials (reinstated-Standalone)


1) The company generated revenue of Rs 11,220 Crores for the year ended Mar-13 and Rs 20,471 Crores for the year ended Mar-17. 

2) The company posted a profit of Rs 883 Crores for the year ended Mar-13 and profit of Rs 819 Crores for the year ended Mar-17.

3) Its FY17 EPS is Rs 10.25 and 3 years average EPS is Rs 11.88.

Also Read: Good Tax Saving ELSS Mutual Funds to invest now in 2017-2018 to save income tax

Standalone Financial Summary of New India Assurance Limited IPO-min

What are the key strengths of New India Assurance Limited?


Here are the key strengths of the company.

1) Market leadership and established brand.

2) Longstanding global footprint and successful international operations.

3) Sustainable business model driven by customer satisfaction.

4) Diversified product offering and product innovation capability.

5) Multi-channel distribution network.

6) Robust financial position.

7) Robust IT infrastructure.

8) Experienced senior management team.

What are the Strategies of New India Assurance  Ltd?


Here are the key strategies of New India Assurance which it want to focus in the coming years.

1) Capitalise on significant market potential and increase company market share.

2) Improve underwriting profitability.

3) Leverage technology to drive growth, profitability and customer satisfaction.

4) Continue to focus on product innovation.

5) Expand company international operations.

Reasons to invest in New India Assurance IPO


1) It posted strong revenue growth of 16% CAGR in the last 5 years.

2) Leading general insurance company in India which has good brand.

Risk Factors / Reasons not to invest in a New India Assurance Ltd IPO


1) It earned low 4% margins for FY2017. Such low margins would leave low profits to the share holders of the company.

2) Any significant variation between actual claim payments from the assumptions and estimates used in the pricing of, and setting reserves for, company various insurance products, may have a material adverse effect on company business, financial condition and results of operations.

3) Any termination or adverse change in company relationship or arrangements with company agents, brokers, bancassurance partners or other distribution intermediaries, or a decline in their productivity, may have a material adverse effect on company business, financial condition and results of operations.

4) Company may not be able to sustain company historical growth rates or successfully implement company business strategies.

5) Company, Directors, Subsidiaries and Group Companies are involved in certain legal and other proceedings.

6) They are subject to a comprehensive and evolving regulatory framework in a regulated industry that affects the flexibility of company operations and increases compliance costs.

7) Company investment portfolio is subject to the volatility in the market value of financial instruments and liquidity risk, which could decrease its value and have a material and adverse effect on company business, prospects, financial condition and results of operations.

8) Catastrophic events, including natural disasters, may result in significant liabilities for claims by policyholders which could have a material adverse effect on company business, prospects, financial condition and results of operations.

9) Any actual or alleged misconduct or fraudulent activity or non-compliance of applicable laws by company employees, agents and other distribution intermediaries may lead to customer claims as well as regulatory action against us, which could adversely affect company business, prospects, financial condition and results of operations.

10) An inability to maintain company market share or effectively address the requirements of specific customer segments by maintaining a strategic portfolio of insurance products may materially and adversely affect company business operations and prospects, and consequently company financial condition and results of operations

11) Company had a deficit in company miscellaneous segment revenue account and negative net cash flows in the past and may continue to have deficit in company revenue account and negative cash flows in the future.

12) Company face certain risks in connection with company co-insurance policies.

13) Any terrorist attack or nuclear disaster in India could have a continuing negative impact on company business.

14) Other risk factors (Internal and external) can be viewed in the prospectus.

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Recommendation / Investment strategy – New India Assurance IPO


1) On the upper price band of Rs 800 and on standalone restated FY17 EPS of Rs 10.25, P/E ratio works out to 78x. Even based on last 3 years restated EPS of Rs 11.88, P/E ratio works out to 67x. Means, company is asking higher price band of Rs 800 in the P/E ratio of 67x to 78x. Its recently listed peers like ICICI Lombard General Insurance are trading at P/E ratio of 47x. Hence New India Assurance issue price of Rs 800 at P/E ratio of 67x is over priced.

2) Company revenues grew at 16% CAGR in the last 5 years. However, it earns low margins. Its issue price is also overpriced. Considering all these negative factors, investors should be little cautious and stay away from such high priced IPOs.

Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

Readers, What is your view on this IPO? Do you feel my thoughts are correct?

If you enjoyed this article, share it with your friends and colleagues through Face book and Twitter.

Suresh

New India Assurance IPO – Should you invest in this high priced IPO

11 comments

  • Manish Nair

    Hi Suresh,
    Nice & well written blog. Thanks for sharing such a nice & informative blog.

  • young investor

    Bidding at 770 would be safer and retain this scrip for good returns  Yield would be steady in PSUs like this. Retails flow has picked up during the day. I buy tomorrow

  • Dipa

    Nice Post Suresh Sir, You described well your topic and it is informative for large and small business comopanies, Client Manager and Business Owners. Thanks for sharing this good content with us. 

  • Younginvestor

    As retail investor, I consider P/E ratio from two angles. a. Average of  3 years and also on current performance as the indian insurance market is growing at 20% while growth in other nations is only 5-6%.

    The growth reflects more profit in short term and P/E ratio automatically would be at par with their peer Lombard if we consider a projected growth in profit too. 

    While the expert opinion is respected, a point on dynamism of a particular industry also need a look from an investor view.

     

    • Muni Vinay

      Fundamentals of the stock and as well the industry is good. However, market sentiment would play a major role for short term investors. Keeping in mind the recent experience of General Insurance Corp IPO, one should be cautious while subscribing the IPO and I would foresee the following strategy

      1. purchase the shares from the market after the listing, as the sentiment driven market would bring down the price on the first couple of days for New India – similar to GIC.

      OR

      2. Bid the shares on the lower price band – if the shares are allotted incase of lower subscription, then you will be still on the safer side in the background of discount offered on the band price for retail investors.

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