General Insurance Corporation (GIC) IPO – Should you invest?
General Insurance Corporation (GIC) IPO – Should you invest?
General Insurance Corporation (GIC) IPO would open for subscription on 11th October , 2017. General Insurance Corporation (GIC) Ltd is the largest reinsurance company in India. Its consolidated premiums grew at 48% CAGR in last 3 years. It posted profits of 9% for FY2017. This Mega GIC IPO Size is Rs 11,372 Crores on higher price band. What are the positive factors in General Insurance Corporation (GIC) Ltd IPO? What are the hidden factors in General Insurance Corporation (GIC) IPO? Is GIC IPO Price is reasonably priced? In this article, I would provide some interesting insights and do General Insurance Corporation (GIC) Limited IPO Review.
About General Insurance Corporation (GIC) Ltd
They are the largest reinsurance company in India in terms of gross premiums accepted in Fiscal 2017, and they accounted for approximately 60% of the premiums ceded by Indian insurers to reinsurers during Fiscal 2017, according to CRISIL Research. They are also an international reinsurer that underwrote business from 162 countries as at March 31, 2017. According to CRISIL Research, they ranked as the 12th largest global reinsurer in 2016 and the 3rd largest Asian reinsurer in 2015, in terms of gross premiums accepted. they provide reinsurance across many key business lines including fire (property), marine, motor, engineering, agriculture, aviation/space, health, liability, credit and financial and life insurance. Through its more than 44 years of experience in, and commitment to, providing reinsurance products and services, they believe that they have become a trusted brand to its insurance and reinsurance customers in India and overseas.
General Insurance Corporation (GIC) IPO Issue details
- IPO open date: 11-Oct-2017
- IPO close date: 13-Oct-2017
- Face Value: Rs 5 per share
- Issue price band: Rs 855 to Rs 912 per share (Retail investors would get Rs 45 per share as discount)
- Issue size: Rs 11,372 Crores on higher price band
- General Insurance Corporation (GIC) IPO Lot size: 16 shares and 16 shares there-off
- Minimum investment: Rs 14,592
- Leading Managers: Citigroup Global Markets, Axis Capital, Deustche Bank, HSBC Securities
- Listing: BSE / NSE
- Download General Insurance Corporation (GIC) IPO RHP Prospectus at this link.
Objects of the General Insurance Corporation (GIC) Ltd IPO issue
a) Offer for Sale
Company will not receive any proceeds from the Offer for Sale.
b) Fresh Issue
Company proposes to utilize the Net Proceeds from the Fresh Issue towards:
(i) augmenting the capital base of our Corporation to support the growth of our business and to maintain current solvency levels
(ii) General corporate purposes.
Company Financials (consolidated reinstated)
1) The company gross premiums are at Rs 15,270 Crores for the year ended Mar-13 and Rs 33,740 Crores for the year ended Mar-17.
2) The company posted a profit of Rs 2,890 Crores for the year ended Mar-13 and profit of Rs 3,140 Crores for the year ended Mar-17.
3) Its FY17 EPS is Rs 36.5 and 3 years average EPS is Rs 34.8.
What are the key strengths of General Insurance Corporation (GIC) Limited?
Here are the key strengths of the company.
1) Leader in Indian reinsurance industry with a trusted brand and 44 years of experience.
2) Significant global player with growing international presence.
3) Diversified product portfolio and revenue streams.
4) Robust and comprehensive risk management framework.
5) Diversified investment portfolio generating strong growth and attractive yields.
6) Strong financial track record and a strong balance sheet.
6) Experienced management team.
What are the Strategies of General Insurance Corporation (GIC) Ltd?
Here are the key strategies of General Insurance Corporation (GIC) which it want to focus.
1) Expand and leverage its leadership position in the domestic reinsurance industry and continue its strong business growth.
2) Expand its presence internationally and grow its overseas business.
3) Focus on improving profitability through reduction in combined ratio.
4) Grow its life reinsurance and other business lines in India and overseas markets.
Reasons to invest in General Insurance Corporation (GIC) IPO
1) It posted strong gross premium growth of 48% CAGR in the last 3 years.
2) It is largest reinsurance company in India having strong brand in insurance segment.
Risk Factors / Reasons not to invest in a GIC IPO
1) Its profits are in declining mode. It earned 18.9% margins in FY13, 15% in FY16 and 9.3% in FY17. Its profits grew at 4.2% CAGR in the last 3 years compared to the revenue growth of 48% CAGR.
2) Its success depends upon its ability to accurately assess the risks associated with the businesses that they reinsure, and if actual losses exceed its estimated loss reserves, its net income and capital position will be reduced.
3) Its risk management system, as well as the risk management tools available to them, may not be adequate or effective in identifying or mitigating risks to which they are exposed.
4) The catastrophe business that they reinsure may result in volatility of its earnings.
5) The usefulness of analytic models as a tool to evaluate risk is subject to a high degree of uncertainty that could result in actual losses that are materially different from its estimates, including probable maximum losses, and its financial results may be adversely impacted, perhaps significantly.
6) They are exposed to credit risk relating to its reinsurance brokers and cedants.
7) They may decide not to purchase or be unable to purchase retrocessional coverage for the liabilities they reinsure, and if they successfully purchase such retrocessional coverage, they may be unable to collect from its retrocession partners, which could have a material adverse effect on its business, financial condition and results of operations.
8) They operate in a highly-regulated industry and any changes in the regulations or enforcem ent thereof may adversely affect the manner in which business is carried on and the price of the Equity Shares.
9) There are outstanding litigations against its Corporation, its Directors and its Group Companies and any adverse outcome in any of these litigations may have an adverse impact on its business, results of operations and financial condition.
10) Regulatory and statutory actions against us could cause reputational harm and could materially adversely affect on its business, financial condition, results of operations and prospects.
11) If they are significantly downgraded by rating agencies, its standing with brokers and customers could be negatively impacted and may adversely impact its results of operations.
12) A substantial increase in its agriculture reinsurance business in recent years exposes us to risks, losses, uncertainties and challenges which could have a material adverse effect on its business, financial condition and results of operations.
13) If they do not meet solvency ratio requirements, its Corporation could be subject to regulatory actions and could be forced to stop transacting any new business or change its business strategy or slow down its growth.
14) Its profitability is affected by the cyclical nature of the reinsurance industry, which is currently characterized excess underwriting capacity and unfavorable premium rates.
15) Other risk factors (Internal and external) can be viewed in the Red Draft Hearing prospectus.
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Recommendation / Investment strategy – General Insurance Corporation (GIC) IPO
1) On the upper price band of Rs 912 and on restated FY17 EPS of Rs 36.5, P/E ratio works out to 25x. Even based on last 3 years restated EPS of Rs 34.8, P/E ratio works out to 26.2x. Means, company is asking higher price band of Rs 912 in the P/E ratio of 25x to 26.2x. There is no listed peers in reinsurance business to compare whether the issue price is under priced or over priced.
2) Company gross premiums grew at 48% CAGR in the last 3 years. However, margins are on declining mode. Its issue price cannot be ascertained under priced or over priced. This being large Mega IPO, there is unlikely that it may get oversubscribed for multiple times. Even if it is fully subscribed, large investors may exit on listing day (considering the size of the IPO). Personally, I would wait and watch for this IPO. If this is available at discounted price after listing, I would like to subscribe to this IPO.
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 not correct?
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General Insurance Corporation (GIC) IPO – Should you Invest
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