Rs 11,000-crore worth General Insurance Corporation IPO gets 3/4th subscription on day one

State-owned General Insurance Corporation of India, (GIC Re) on its first day of initial public offering, saw good response from investors as the issue got 75% subscription.

GIC Re's IPO issue will be available till October 13, 2017 for subscription. Price band has been fixed at lower end of Rs 855 per share and upper end of Rs 912 per share.

50% of the issue has been kept for qualified institutional buyers (QIB) for subscription, while 35% for retain individual investors (RII ) and remaining 15% for non-institutional individuals (NII).

QIBs have already oversubcribed the issue by 1.50 times on NSE, by bidding about 9,32,13,408 equity shares compared to the 6,22,77,900 equiy shares offered on Wednesday.

Companies like Citigroup Global Markets India, Axis Capital, Deutsche Equities India, HSBC Securities and Capital Markets (India) and Kotak Mahindra Capital are acting as book running lead managers (BRLM) for the issue.

The company plans to raise about Rs 11,370 crore from its IPO issue - which would be India's second-biggest public offer since Coal India's Rs 15,200 crore share sale in October 2010 and Reliance Power's Rs 10,123.2 crore share sale in January 2008.

Issue consists of an offer for sale (OFS) of 10.75 crore equity shares worth Rs 9,804 crore at higher price band and a fresh issue of 1.72 crore equity shares worth Rs 1,569 crore.

Government through this IPO plans to sell 12.26% stake in the company and the corporation itself is selling 1.96% stake. After the issue, promoters holding in GIC Re is expected to drop by nearly 86%.

On the valuation front, at upper price band of Rs 912, the issue is priced at a P/E of 25.5x on FY17 EPS and P/B of 4x on FY17 book value (Post IPO dilution).

Analysts at Geojit said, “GIC plans to raise Rs1,569 crore through fresh issue and will utilise these proceeds towards augmenting the capital base of the company to support the growth of the business and to maintain current solvency levels.”

Recommending subscription, Geojit added, “We believe the issue is attractively priced considering its strong financial track record, healthy balance sheet and bright prospects of the overall general insurance sector in the future.”

GIC provides reinsurance across many key business lines including fire (property), marine, motor, engineering, agriculture, aviation/space, health, liability, credit & financial and life insurance.

As per Crisil Research report, the company accounts approximately 60% of the premiums ceded by Indian insurers to reinsurers during FY17. 

The company is also an international reinsurer that under wrote business from 161 countries and it is ranked as the 12th largest global reinsurer in 2016 and the 3rd largest Asian reinsurer in 2015, in terms of gross premiums accepted.

On performance front, its gross premiums have grown at a CAGR (Compounded annual growth rate) of 48.65% from FY15 to FY17. 

While operating profit and PAT have grown at a CAGR of 17% and 4% respectively with an average RoE (return on equity) of 17%. 

GIC attained a very healthy solvency ratio of 2.4x in FY17 compared to the IRDAI prescribed control level of 1.5x.

On sector-wise, the reinsurance premiums in India are projected to increase at 11- 14% CAGR over the next five fiscals. Being a leading reinsurer in India, GIC will be benefited from this expected industry growth, added Crisil. 

Payal Pandya and Siddhartha Khemka, analysts at Centrum Research giving similar opinions said, "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."

However, the duo at Centrum highlighted list of risk factors for the company. They are - 1) Highly-regulated industry; 2) High risk of uncertainty as substantial business comes from agriculture (29% of gross premium) and 3) Top 5 cedents contributed 58.4% of the domestic reinsurance business in FY17. 

Post IPO, GIC Re's market capitalisation is projected to be between Rs 75,001 crore – 80,001 crore, respectively.