GIC Re IPO opens today. Should you invest?

General Insurance Corporation of India Limited (GIC Re’s) initial public offer (IPO) opens today for subscription. The company aims to garner over Rs 11,000 crore. The price band has been fixed at Rs 855 - Rs 912 per share. The IPO would be India's third biggest ever, after Coal India's Rs 15,200 crore and Reliance Power's Rs 11,700 crore issues.

The Gic Ipo consists of an offer for sale (OFS) of 10.75 crore shares (12.5% stake pre-issue) worth Rs 9,804 crore at the higher price band and a fresh issue of 1.72 crore shares worth Rs 1,569 crore.

The amount raised from the fresh issue will be used for augmenting the capital base to support future business growth and to maintain current solvency levels.

GIC Re is the largest reinsurance company in India in terms of gross premiums accepted in fiscal 2017. The company, according to CRISIL Research, accounted for nearly 60% of the premiums ceded by Indian insurers to reinsurers in FY17.

Should you subscribe to the IPO? This is what leading brokerages and research houses across the country suggest:

PRABHUDAS LILLADHER

GIC Re showed strong net premium growth at 73% YoY mainly led by four?fold jump in crop insurance premium collections in FY17 due to the implementation of Pradhan Mantri Fasal Bima Yojana (PMFBY) scheme whereas fire insurance continues to grow stable at ~23%. GIC Re does not look to increase third party motor business and health group business which has historically had high losses and has not been a profitable business line. At the upper band of Rs 912, the company trades at 27.4x Mar?17 EPS which we believe is fairly priced, but given the liquidity in the markets and company’s performance in the recent past, we recommend to Subscribe for long term gains.

CENTRUM BROKING

The issue appears fairly priced considering a return ratio of ~16% RoE and PAT CAGR of mere 5.7% over FY13-17. On other parameters, GIC has healthy financials with Incurred Claims ratio of 81.6%, combined ratio of 100.2% and solvency ratio of 2.41x as on Mar’17. GIC being a leading reinsurer in India with ~60% market share, could continue to see a stable growth, going ahead. However, given the full valuation and size of the issue (one of the biggest IPOs in last few years), the stock is expected to give returns only in the long term.

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