New India Assurance Company Limited
New India Assurance  IPO
(New India Assurance Company Limited IPO) comprises of up to 120,000,000 Equity Shares of the Company consisting of a fresh issue of up to 24,000,000 equity shares and an offer for sale of up to 96,000,000 equity shares by The President of India, acting through the Ministry of Finance, Government of India (the “Selling Shareholder”). The Offer and the Net Offer shall constitute 14.56% and 14.13%, respectively of the post-Offer paid-up Equity Share capital of the Company. A discount of Rs. 30 on the Offer Price is being offered to Retail Individual Investors and to Eligible Employees Bidding in the Employee Reservation Portion of the New India Assurance  IPO.

New India Assurance Company Limited IPO Details
Issue PeriodWednesday, Nov 1, 2017 – Friday, Nov 3, 2017
Issue Size (No. of Shares)Fresh Issue of 24,000,000 Equity shares
 and Offer For Sale of 96,000,000 Equity shares
Issue Size (No. of Shares)120,000,000 Equity Shares
Issue Size ( Rs. Cr)Rs.9,106.98 Cr – 9,466.98 Cr
Employee Reservation3,600,000 Equity Shares ( Rs.266 Cr – 277Cr)
Price BandRs. 770 – 800
Bid Lot18 Shares and in multiple thereof
Retail & Employee DiscountRs.30/- per Equity Share
Issue Structure : 
QIB50% of the Net offer (upto 58,200,000 Equity Shares) (Rs.4,481Cr – 4,656  Cr)
NIB15% of the Net offer (upto 1,74,60,000 Equity Shares) (Rs.1,344 Cr – 1,397 Cr)
Retail35% of the Net offer (upto 4,07,40,000 Equity Shares) (Rs.3,015 Cr – 3,137 Cr)
Applications for 1x Subscription22,63,333
BRLMsAxis Capital, Kotak Mahindra Capital, IDFC Bank, Nomura Financial, Yes Securities
RegistrarLink Intime India Pvt. Ltd.

About New India Assurance Company Limited

  • The New India Assurance Company Limited (“NIA”)  is a 100% Govt owned general insurance company operating in 28 countries. It offers general insurance as well as cover for threats from accidents such as fire, engineering, aviation, liability, marine, motor and health insurance. It is the market leader in each of the product segment.
  • The company is registered with IRDAI for carrying out the business of General Insurance and has product verticals viz. Fire Insurance, Marine Insurance, Motor Insurance, Crop Insurance, Health Insurance and Other Insurance Products. 
  • NIA 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
  • As of June 30, 2017, the distribution network in India included 68,389 individual agents and 16 corporate agents, Bancassurance arrangements with 25 banks in India as bancassurance partners (including Bank of India and Canara Bank) and a large number of OEM and Automotive Dealer arrangements through their agent and broker network.
  • New India Assurance Company Limited issued 2.71 crore policies across all their product segments, the highest among all General Insurance companies in IndiaAs of June 30, 2017, its operations were spread across 29 States and 7 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.

Financials:New India Assurance IPO 
Rs. In Crores
 Particulars3m Jun 2017201720162015
Revenue- Premiums Earned (net)4,768.4017,674.7015,215.0013,353.80
Revenue-Investment Income348.41,209.80879.2900.2
Operating Income5591.420,553.6217672.73 
Profit Before Tax617.3956.71,045.401,704.80
Profit After Tax513.3839.8930.31,377.30
Combined Ratio110.60%119.70%117.90%115.50%
Solvency Ratio2.22.22.42.5
Face Value55  
Share Capital200200200200
Reserves (net)13,091.2012,617.7012,294.5011,469.20
Net Worth~13,123.5012,596.4012,058.7011,669.20
Fair Value Change A/c25,160.0023,701.6019,093.3022,838.80
Investments55,028.3051,930.6044,971.7045,364.60
Current Liabilities24,703.9023,834.6023,948.6020,004.20
RoNW (%)#3.996.80%7.80%12.30%
EPS  (Rs. per Share) #6.2910.71217.7
IPO Price (Upper Band)800
PE Ratio74.77
Post Issue Equity412
Market Cap (crore)65920
Market Cap /Income3.21
Objectives of the Issue

Proceeds of the fresh issue would be utilized towards meeting future capital requirements which are expected to arise from the growth and expansion of business, improving solvency margin and consequently solvency ratio.

Rationale for Investment

  • The New India Assurance Company enjoys 15% market share in terms of gross direct premium among general insurers in India. New India Assurance being a market leader in the segment  can benefit from the healthy growth expected in India’s non- life insurance segment.
  • The company apart from pan India presence has International operations since 1920. It has presence in the UK with a desk at Lloyd‘s, London and operations in Japan and Australia for over 50 years.
  • New India Assurance Company Limited  enjoys an unblemished Track record of funding  its operations for more than 40 years without any capital infusion
  • The company has a  Diversified product offering with more than 230 offerings and presence across various verticals.
  • New India Assurance Company Limited has a Strong relationship with reputed re-insurers.
  • New India Assurance Company Limited  has an Expansive multi-channel distribution network which includes individuals and corporate agents, brokers, bancassurance partners and other intermediaries, as well as direct sales and sales through online channels. In FY17, gross direct premium generated from agent network (individual and corporate agents), brokers, and bancassurance partners contributed 42.0%, 25.8%, and 1.3%, respectively, of total gross direct premium in India, while direct sales contributed 31.1% of gross direct premium. 
  • The company has a Robust IT infrastructure.
  • New India Assurance Company Limited , Opex ratio which stood  20.4% in the year 2017,  is the he lowest among  the multi-product insurers in the country.
  • New India Assurance Company Limited is rated “AAA/Stable” by CRISIL.
  • Company is required to pay annual dividend of 30% of PAT or 30% of Government of India’s equity, whichever is higher which may ensure good dividends.

Concerns

  • Catastrophic events, including natural disasters, could materially increase liabilities for claims by policyholders, result in losses in investment portfolios, and have a material adverse effect on business, financial condition and results of operations.
  • New India Assurance Company Limited which at one stage enjoyed virtual monopoly  faces increasing competition in non-life insurance space from private players. 
  • A significant portion of New India Assurance Company Limited investment returns come from investments in the debt  and equity markets in India which are subject to inherent risks.
  • Adverse changes in reinsurance market could have a material adverse effect on its business as GIC Re is the largest reinsurance partner of the Company.

Peer Comparison: New India Assurance vs ICICI Lombard
Figures in Rs. Crores
 ParticularsICICI Lombard(2017) New India Insurance(2017)
Revenue-Premiums Earned (net)6,157.7017674.78
Revenue-Investment Income296.9
1209.85
Operating Income7180.4920553.62
Profit Bef Tax880.1956.79
Profit Aft Tax641.82857.86
EPS14.1410.41
Market / IPO Price681.00800
P/E48.1676.84
BV82.50178.86
P/BV8.254.47
RONW18.406.80
FV10.005.00
Share Capital452.90412.00
Market Cap (crore)3084265920
Market Cap /Income4.303.21

Assessment:New India Assurance  IPO

  • India is amongst the fastest growing markets in General Insurance. India’s general insurance penetration in terms of  gross insurance premiums as a percentage of GDP stood at 0.8% in 2016 while this figure stood at 2.81% globally.
  • Non-life insurance sector is expected to grow at a steady pace of 15-18% CAGR. 
  • New India Assurance Company Limited  commands a 15% share of the General Insurance market and is about three times the size of its nearest competitor ICICI Lombard on many parameters like Operating incomes, total investments, expected market cap etc.
  • While New India Assurance Company Limited  gross written premiums have grown at at a healthy rate of 15% CAGR between fiscals FY13-17 , its net profit has shown a decline from Rs. 914 crore to Rs. 840 crore in  this period. Further its share of the General insutrnce has gone down from 15.6% to 15% in the previous year.
  • While New India Assurance Company Limited has priced the issueat  P/B of 4.5x iwhich s below its peer,  ICICI Lombard,  ICICI Lombard has enjoyed a higher  CAGR growth of 25% vis a vis 15% for New India Assurance Company Limited  over the last 5 years.
  • Company’s combined ratio stands at  111% which means insurance business has been loss making and more money is going in claims than premium earned (loss above combined ratio of 100)
  • GIC Re which I consider to be on a stronger turf and is a dominant player in Reinsurance market has been received poorly by market till date. Response to SBI Life has also been lukewarm. In such scenario and couple of other insurance issue on the the anvil, it is felt that New India Assurance IPO  may not be able to attract much investor interest. The retail discount of Rs. 30/- may not be enough to ensure profits to retail investors esp. on listing and as a govt. company the New India Assurance IPO price was expected to be more reasonable.
  • At this stage, I do not intend to apply in New India Assurance IPO.

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.