New India Assurance's mega IPO gets lukewarm response

If not for LIC, the Rs 9,600-cr offer would have struggled to garner full subscription

The Rs 9,600-crore initial public offering (IPO) of New India Assurance Company received a lukewarm response from investors, with the shares meant for retail and high net-worth individuals (HNIs) remaining undersubscribed. 

The general insurer’s maiden offer garnered just 1.2 times subscription. The qualified institutional buyer (QIB) category was subscribed 2.4 times, while that of retail and HNI investors received only 12 per cent and 11 per cent subscription, respectively.

Within the QIB category, bulk of the bids came from state-owned Life Insurance Corporation (LIC). Investment banking sources said LIC placed bids through multiple brokers, between Rs 8,000 crore and Rs 9,000 crore. Total demand from overseas investors was worth less than Rs 100 crore. Mutual funds placed bids worth Rs 230 crore. Retail investors, who were being offered a discount of Rs 30 per share on the issue price, placed bids to the tune of Rs 360 crore.

Industry observers said this was one of the weakest responses for a public sector undertaking IPO. Last month, General Insurance Corporation of India’s (GIC Re’s) Rs 11,300-crore offer had seen a slightly better response, as its offering was subscribed 1.4 times. It saw close to 650,000 applications. In comparison, New India received only 137,000 applications.

“Investors turned wary after GIC Re got listed at a discount. Also, most brokerages had termed the New India IPO expensive, with limited scope for listing day gains. This resulted in the lukewarm response,” said an investment banker.

The price band for the New India IPO was Rs 770-800 per share, valuing the country’s largest general insurer at Rs 63,448-65,920 crore. “At the higher end of the band, the issue is priced at 5.2 times its FY17 book value, and at 1.8 times its book value (including fair value change account). It appears expensive, considering a mere 6.8 per cent return on equity (RoE), an operating loss of Rs 901 crore and a declining net profit,” Centrum Broking had said in a note to clients, asking them to ‘avoid’ the IPO.

Angel Broking had assigned a ‘neutral’ rating to the IPO, citing subdued RoE, inconsistent profit growth and a higher combined ratio of the insurer. 

Even the unofficial grey market activity suggested the stock would be available at a cheaper price after listing.

Through the offer, New India raised Rs 1,920 crore in fresh capital, which will be used to meet its future fund requirements, improving the solvency margin and solvency ratio. Meanwhile, the government raised Rs 7,680 crore through the IPO as a part of its 2017-18 disinvestment programme. Following this, the government’s holding in the company will fall from 100 per cent to 85.4 per cent. New India’s IPO was handled by Kotak Mahindra Capital, Axis Capital, Nomura, IDFC Bank and Yes Securities.