GIC Re IPO
The GIC Re IPO is a mix of Offer for sale worth of  Rs. `9,804cr and fresh issue of Rs. 1,569 cr a . Thus the  GIC Re IPO shall be raising as much 113.7 billion rupees in what will be the second largest IPO after coal India.. Post issue the state run  re insurer will dilute 14.22% of its post-offer paid-up equity share capital. 

GIC Re IPO Details:
Issue Period Wed, Oct 11, 2017 – Friday, Oct 13, 2017
Issue Size ( in Rs.)11,176 Cr
Issue size (in Shares)Fresh Issue of 17,200,000 Equity Shares and Offer for sale of 107,500,000 Equity Shares.
Price BandRs.855 -912
Bid Lot16 Equity Shares and multiple thereof
Retail &Employee DiscountRs.45/- Per Equity Share
Issue Structure : 
QIB50% of the Net Offer- Rs. 2,277,900Shares – 5,680 Cr
NIB15% of the Net Offer – 18,683,371 Shares – 1,704 Cr
Retail35% of the Net Offer -43,594,532 shares – 3,780 Cr
Applications for 1x Retail subscription27,24,658
Lead ManagerAxis Capital, Citigroup Global, Deutsche Equities, HSBC Securities, Kotak Mahindra Capital
RegistrarKarvy Computershare Pvt. Ltd.
About GIC
  • General Insurance Corporation of India, was incorporated in 1972 and is the largest Re-insurance company in India . It provides various general insurance products like property, energy, marine, engineering, miscellaneous, aviation- hull/spares-rotor wing, aviation-hull/spares-fixed wing, liability, aviation treaty–hull, spares and liability insurance products.
  • GIC Re is the largest reinsurance company in the country  in terms of  gross premiums accepted in the fiscal ended March 2017 (FY2017), accounting for nearly 60% of the premiums ceded by Indian insurers to reinsurers in the fiscal year.
  • General Insurance Corporation (GIC) is also an international reinsurer that underwrites business from 162 countries around the globe. The company takes up reinsurance business for its counter-parts in the Afro-Asian region, in South East Asia, the Middle East and Africa. GIC has developed its overseas business through its office in Mumbai & has  branch offices in London, Dubai and Kuala Lumpur, a representative office in Moscow, a subsidiary in the United Kingdom which is a member of Lloyd’s of London and a subsidiary in South Africa.General Insurance Corporation.
  • As per CRISIL Research, GIC was ranked as the 12th largest global reinsurer in 2016 and was ranked as the 3rd largest  reinsurer in Asia in the year  2015,

  • Top 10 Clients  of GIC Re (Direct Insurers & Reinsurers) 
    Slno.Name of the CompanyGross Premium (Rs. In Cr)
    1Agriculture Insurance Company of India Limited4,145.48
    2National Insurance Company Limited2,950.59
    3ICICI Lombard General Insurance Co. Limited2,615.29
    4United India Insurance Company Limited2,233.35
    5The New India Assurance Company Limited1,778.03
    6HDFC ERGO General Insurance Company Limited1,564.60
    7Reliance General Insurance Co Limited1,208.06
    8The Oriental Insurance Company Limited883.17
    9IFFCO-Tokio General Insurance Company Limited835.84
    10Bajaj Allianz General Insurance Company Limited790.66
Financials:
(Rs. In Cr)
 Q1Fy18201720162015
Revenue- Premiums Earned (net)12,922.5026,374.6015,338.2013,594.70
Revenue-Investment Income787.52,915.302,866.202,899.30
Profit Before Tax557.73,416.503,021.402,830.50
Profit After Tax554.23,004.202,689.502,801.00
Share Capital430430430430
Reserves (net)20,256.8019,538.7017,987.7015,594.10
Net Worth20,143.2019,513.6017,413.5015,236.70
RoNW (%)12.48%16.09%16.22%18.97%
Face Value55  
NAV (Rs. per share)234.22226.9202.48177.17
EPS  (Rs. per Share)29.2436.5232.8333.62
IPO Price912   
P/E Ratio at upper band24.97   
P/BV ratio3.89
Post Issue Equity438.60crore
Market Cap 80001crore
Market Cap/Gross Premium2.37
Combined Ratio98.43%100.16%107.03%108.86%
Solvency Ratio1.832.413.83.32
Objectives of the GIC Re IPO
 The net proceeds from the fresh Issue will be used towards augmenting its capital base & to maintain current solvency levels as well to meet general corporate needs
Rationale for Investment
  • GIC Re is leader in Indian re insurance industry with 44 years of experience
  • The compnay has a strong financial track record and a strong balance sheet.  The company has been growing at CAGR of 32% over the past four years.  
  • GIC Re has a Diversified product portfolio across  various segments and revenue streams.For GICRE, 60% of its  business comes from private insurance space, while the remaining is from state-owned insurance companies. It writes reinsurance for every non-life and over half of the life insurance companies in India. Agriculture contributes the most to its business, followed by fire and motor segment.
  • GIC Re has considerable international presence.  It had a gross premium book of Rs 33,741cr in last financial year, of which 30% was contributed by overseas business.
  • The combined ratio has come down to 98.4% in Q1FY18 from 100.2% as of Q4FY17. The company plans to reduce it, in short to medium term, in the range of 95-100
  • GIC re has Diversified investment portfolio and has been able to generate reasonable yield on it. Its investment book worth 41,930cr has Rs. 73,903cr Market value and on this the company has been able to generate yield of 12.3% for FY2017. For the year FY2013-FY2016 GIC Re has managed to generate yield in range of of 11.9%-14.1 on its investment portfolio.  As on Q1FY18, the company’s portfolio consisted of  fixed income debt securities, equities and money market instruments in ratio of 61.49%, 20.21% and 17.12% respectively.
  • GIC Re attained a very healthy solvency Ratio of 2.41x in FY17 (1.83x in Q1FY18) compared to the IRDAI prescribed control level of 1.5x.
  • Its average ROE for last 3 years is 16.61% and post issue ROE will be around 15%.
Concerns
  • In the reinsurence business there is inherent uncertainty in estimating loss reserves which are based on future claims liabilities; and thus there is no guarantee that the ultimate liability will not exceed the amounts reserved. 
  • Catastrophic events, including natural disasters could materially increase the
    liabilities for claims and can result in losses.
  • The last few years has witneessedconsiderable  increase in GIC Re  agriculture reinsurance business which carries risks due to vagaries of weather and political compulsions.
  • GIC Re RoE has been on a decline, falling from 18.97% in FY15  to 16.09% in FY17
  • Due to its multinational reinsurance operations, the company is exposed to losses that may arise on account of  Foreign currency fluctuations,
  • Being government controlled, Company may be subject to political interference and political selection of top management.
GIC Re IPO: Assessment
  • India is the tenth largest life-insurance market in the world by total premium and  fifteenth largest non-life-insurance market in the world by gross premiums. The Indian insurance market offers an opportunity due to the high growth rate, due to its  low penetration levels.
  • GIC Re has no listed peers to compare. GIC Re IPO is priced at P/E of ~25x  based on Post issue equity which is lower than the global average PE which ranges 45 to 50 times.
  • The Company is required to pay annual dividend of 30% of PAT or 30% of  companies. 
  • GIC Re has achieved a good balance of international and India business by premiums and this provides it some degree of stability as it faces risk from its increasing exposure to agriculture sector.
  • The company has been growing at CAGR of 32% over the past four years and has good solvency and combined ratios which are important yardsticks of measuring performance of insurance sector companies. 
  • The gross non-performing assets (NPAs) as a percentage of gross loans and debt securities stood at 2.67% and the net NPAs as a percentage of net loans and debt securities at 0.72% end June 2017. 
  • The GIC Re IPO issue appears to be priced reasonably considering  its unique position in the sector, difficult entry in reinsurance business, strong financial track record, considerable scope in the country due to lower penetration at present.
  • The GIC Re IPO issue  needs 27 lac applications for 1x subscription on minimum lot application basis which is impossible to achieve and thus allotment in the issue will be quite easy and those applying for more than minimum are likely to get more shares.
  • Lack of  any activity in Grey market may result in lower HNI subscription to the GIC Re IPO issue and listing gainns could be capped in GIC  Re IPO. 
  • I intend to put  some application in the IPO looking into the formidable dominance of the company in reinsurance sector, good growth in revenues and profits, decent dividends and hope the discount to retail will stand in good stead. Even though the issue valuation seems fair, I am wary of Government tag with the company which many times results in lower growths and mismanagement and hence will desist from putting in all applications. It is not impoosible but not easy for Govt. sector companies to outperform  unless they have developed a +ve work culture from the beginning. While GIC is Government controlled it may also be noted that 30% of its business is from foreign countries and 60% of its revenues come from private insurers. 
  • 12/10/17: Iam likely to put all applications in GIC re IPO.May even opt for applications larger than minimum lot.

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.