Business description from prospectus - New India
Assurance 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. The
company has been in operation for almost a century. In Fiscal 2017, it
had the largest market share of gross direct premium among general
insurers in India. As of March 31, 2017, it had issued 27.10 million
policies across all product segments, the highest among all general
insurance companies in India. As of June 30, 2017, its 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.
Its insurance products can be broadly categorized into the following product verticals: fire insurance; marine insurance, motor insurance, crop insurance, health insurance and other insurance products. In Fiscal 2017, its gross direct premium from fire, engineering, aviation, liability, marine, motor and health insurance represented a market share of 19.1%, 21.9%, 29.6%, 18.2%, 21.0%, 15.1% and 18.4%, respectively, of total gross direct premium in these segments in India, and it was the market leader in each such product segment.
Promoters of New India Assurance - The President of India
About the issue
The New India Assurance Company is coming with an IPO to raise Rs. 10,560 crore through fresh issue of 2.4 crore shares and offer for sale of 9.6 crore shares. The offers will remain open from November 1 to 3, 2017. The shares will be issued in the price band of Rs. 770-880 crore and retail investors and eligible employees will be given a discount of Rs. 30 per share. The face value of the share is Rs. 5. One would need capital of Rs. 15,840 to subscribe for the issue as the minimum lot size if 18 units. The lead book runners for the issue are Axis Bank, IDFC bank, Kotak Mahindra Capital, Nomura and Yes Bank.
With this IPO, the company will be listed on both NSE and BSE.
Purpose of the issue
At the lower end of the price band, the company will raise ~Rs. 1,848 crore. The funds will be used to meet the IPO-related expenses and for future growth and expansion in FY18.
The company has a current solvency ratio of 2.27 which is above the IRDA requirement of 1.5. The company plans to utilize the funds to also maintain or improve this ratio post the expansion plans.
About New India Insurance
New India Assurance is a leader in the general insurance category, with a market share of 19.1%, 21.9%, 29.6%, 18.2%, 21.0%, 15.1% and 18.4% of total gross direct premium from segments fire, engineering, aviation, liability, marine, motor and health insurance, respectively. We see that the company enjoyed an overall market share of 15% in FY17 and stands at number one position in the category. However, its market share has marginally diminished from FY15 from 15.6% to 15% in FY17. This could be largely driven by slipping in the market share in fire insurance (largest category in general insurance industry) from 20.4% in FY15 to 19.1% in FY17. However, the company has been able to grow its standing in the motor insurance sector.
The company has witnessed a CAGR of 15.18% in gross written premium over FY13-17 which was almost in-line with non-life insurance industry growth of 15% CAGR over FY11-16. In FY17, its gross written premium stands at Rs. 23,230.5 crore. Also, its claims settlement ratio in FY17 improved to 96.51% from 95.8% in FY15. Motor and health contributes ~64% to the gross written premium followed by fire, other, crop and marine. The company offers approx. 230 products under these business segments.
The company has about 2,452 offices in India in all states and union territories. It has a robust distribution network with 68,389 agents and 16 corporate agents along with tie-ups with banks and automotive OEMs and dealers. The direct channel of agents contributes ~42% to the business, followed by 25.75% from brokers. Being a PSU, the company also partners with state and central government for implementation of various insurance schemes.
Company's gross written premium increased at a CAGR of 15.18% and networth increased at a CAGR of 7% over FY13 to FY17. Gross direct premium per employee increased from Rs 62.7 lakh in FY13 to Rs 122.6 lakh in FY17. Also, operating expense ratio was 20.40% in FY17 which is lowest among the top 10 multi-product insurers in India.
The company intends to focus on high growth retail health sector, innovative products for miscellaneous segments including cyber liability, title insurance for immovable property and unorganized commercial sector.
Its insurance products can be broadly categorized into the following product verticals: fire insurance; marine insurance, motor insurance, crop insurance, health insurance and other insurance products. In Fiscal 2017, its gross direct premium from fire, engineering, aviation, liability, marine, motor and health insurance represented a market share of 19.1%, 21.9%, 29.6%, 18.2%, 21.0%, 15.1% and 18.4%, respectively, of total gross direct premium in these segments in India, and it was the market leader in each such product segment.
Promoters of New India Assurance - The President of India
| New India Assurance IPO details | |
| Subscription Dates | 1 - 3 Nov 2017 |
| Price Band | INR770 - 800 per share (retail discount - INR30 per share) |
| Fresh issue | 24,000,000 shares (INR1,848 - 1,920 crore) |
| Offer For Sale | 96,000,000 shares (INR7,392 - 7,680 crore) |
| Total IPO size | 120,000,000 shares (INR9,240 - 9,600 crore) |
| Minimum bid (lot size) | 18 shares |
| Face Value | INR5 per share |
| Retail Allocation | 35% |
| Listing On | NSE, BSE |
The New India Assurance Company is coming with an IPO to raise Rs. 10,560 crore through fresh issue of 2.4 crore shares and offer for sale of 9.6 crore shares. The offers will remain open from November 1 to 3, 2017. The shares will be issued in the price band of Rs. 770-880 crore and retail investors and eligible employees will be given a discount of Rs. 30 per share. The face value of the share is Rs. 5. One would need capital of Rs. 15,840 to subscribe for the issue as the minimum lot size if 18 units. The lead book runners for the issue are Axis Bank, IDFC bank, Kotak Mahindra Capital, Nomura and Yes Bank.
With this IPO, the company will be listed on both NSE and BSE.
Purpose of the issue
At the lower end of the price band, the company will raise ~Rs. 1,848 crore. The funds will be used to meet the IPO-related expenses and for future growth and expansion in FY18.
The company has a current solvency ratio of 2.27 which is above the IRDA requirement of 1.5. The company plans to utilize the funds to also maintain or improve this ratio post the expansion plans.
About New India Insurance
New India Assurance is a leader in the general insurance category, with a market share of 19.1%, 21.9%, 29.6%, 18.2%, 21.0%, 15.1% and 18.4% of total gross direct premium from segments fire, engineering, aviation, liability, marine, motor and health insurance, respectively. We see that the company enjoyed an overall market share of 15% in FY17 and stands at number one position in the category. However, its market share has marginally diminished from FY15 from 15.6% to 15% in FY17. This could be largely driven by slipping in the market share in fire insurance (largest category in general insurance industry) from 20.4% in FY15 to 19.1% in FY17. However, the company has been able to grow its standing in the motor insurance sector.
The company has witnessed a CAGR of 15.18% in gross written premium over FY13-17 which was almost in-line with non-life insurance industry growth of 15% CAGR over FY11-16. In FY17, its gross written premium stands at Rs. 23,230.5 crore. Also, its claims settlement ratio in FY17 improved to 96.51% from 95.8% in FY15. Motor and health contributes ~64% to the gross written premium followed by fire, other, crop and marine. The company offers approx. 230 products under these business segments.
The company has about 2,452 offices in India in all states and union territories. It has a robust distribution network with 68,389 agents and 16 corporate agents along with tie-ups with banks and automotive OEMs and dealers. The direct channel of agents contributes ~42% to the business, followed by 25.75% from brokers. Being a PSU, the company also partners with state and central government for implementation of various insurance schemes.
Company's gross written premium increased at a CAGR of 15.18% and networth increased at a CAGR of 7% over FY13 to FY17. Gross direct premium per employee increased from Rs 62.7 lakh in FY13 to Rs 122.6 lakh in FY17. Also, operating expense ratio was 20.40% in FY17 which is lowest among the top 10 multi-product insurers in India.
The company intends to focus on high growth retail health sector, innovative products for miscellaneous segments including cyber liability, title insurance for immovable property and unorganized commercial sector.
Financial performance
The company has been able to grow the gross premium written at ~15% CAGR over FY15-17. However, the company has been making operating losses in miscellaneous insurance segment since last five years which are eating up the profits from the marine business. Also, we note that profit before tax has declined from Rs. 1697 crore in FY15 to Rs. 926.3 crore in FY17. Consequently, PAT has also declined from Rs 1374 crore in FY15 to Rs. 819crore in FY17.
Valuation
Company’s P/B on the lower band for the offer is at ~4.5x which is lower that ICICI Lombard P/B of 7.63x. However, New India assurance RoNW is at 6.3x while ICICI Lombard is ~14x.
Our view
Non-life insurance sector is expected to grow at a steady pace of 15-8% CAGR. We see that New India Assurance being a market leader in the segment will benefit from the same. However, we see that rising claims and declining profitability doesn’t augur well for the company. We see that the company is still dependent on direct sales channel for 60% of the premium collected and has a high dependency on the state of Maharashtra. Though the P/B of 4.5x is below its only listed peer ICICI Lombard, we see the performance is way below ICICI Lombard which has seen CAGR growth of 25% over the last 5 years.
The company has been able to grow the gross premium written at ~15% CAGR over FY15-17. However, the company has been making operating losses in miscellaneous insurance segment since last five years which are eating up the profits from the marine business. Also, we note that profit before tax has declined from Rs. 1697 crore in FY15 to Rs. 926.3 crore in FY17. Consequently, PAT has also declined from Rs 1374 crore in FY15 to Rs. 819crore in FY17.
Valuation
Company’s P/B on the lower band for the offer is at ~4.5x which is lower that ICICI Lombard P/B of 7.63x. However, New India assurance RoNW is at 6.3x while ICICI Lombard is ~14x.
Our view
Non-life insurance sector is expected to grow at a steady pace of 15-8% CAGR. We see that New India Assurance being a market leader in the segment will benefit from the same. However, we see that rising claims and declining profitability doesn’t augur well for the company. We see that the company is still dependent on direct sales channel for 60% of the premium collected and has a high dependency on the state of Maharashtra. Though the P/B of 4.5x is below its only listed peer ICICI Lombard, we see the performance is way below ICICI Lombard which has seen CAGR growth of 25% over the last 5 years.
2 comments:
Very nice article... summarized well
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