Missed New India Assurance IPO? Maybe it was for the best

By: | Published: November 13, 2017 4:25 PM

New India Assurance shares fell on the first day of trading and settled 9% lower than the IPO price but don't be too tempted to enter the stock right now. There might be a case for further correction.

A man looking at the stock ticker of Bombay Stock Exchange. (Image: Reuters)

New India Assurance shares fell on the first day of trading and settled 9% lower than the IPO price of Rs 925.05 on BSE on Monday. The second largest IPO of the current year 2017, and the second ever public issue by a government-run general insurance company was oversubscribed, primarily owing to heavy institutional activity on day 1 of the offer itself. While those hoping for listing gains from the stock might have been left disappointed by today’s fall, there are many who might be thinking of buying the stock now at a cheaper price, having missed the IPO earlier.

However, there might be a case for further caution in buying New India Assurance shares, even at the current prices, as some analysts say the stock is still expensive. Those who want to enter into New India Assurance’s shares may do so after another 10% correction from here, an analyst said to FE Online, requesting anonymity. Investors may enter the stock at a level of around Rs 650, the analyst said.

The stock of New India Assurance opened 6% lower from its issue price of Rs 800 on its stock market debut on Monday while the stock lost 10.33% to hit the day’s low of Rs 717.4 before closing down 9.6% at Rs 723.2 on NSE. New India Assurance had raised Rs 9,600 crore through the IPO (initial public offering) at the upper end of price band of Rs 800.

Even before the IPO, several analysts had sounded a word of caution on the buying New India Assurance shares, citing high valuations, especially in comparison to recent peer issues such as ICICI Lombard. Angel Broking had written: “At the upper price band of Rs 800, the issue is offered at 5x FY-2017 book value and 76x FY-2017 EPS. Its listed peer ICICI Lombard is trading at 8x FY-2017 book value and 48 times FY-2017 EPS. ICICI Lombard reported decent ROE of 17% and average ROE for last 5 years is 19%, while NIA reported subdued ROE of 7% for FY-2017 and average ROE of 9%. NIA’s combined ratio is consistently higher than 115%, which is impacting the profitability of the company. Considering the subdued ROE, inconsistent PAT and higher combined ratio, we recommend NEUTRAL rating on the issue,” Angel Broking had said in its pre-IPO report.

On the other hand, HDFC Securities pointed to the strengths of the company. New India Assurance is the market leader and also has an established brand, it had said in its pre-IPO note. However, HDFC Securities also listed few concerns such as an inability to maintain market share or effectively address the requirements of specific customer segments by maintaining a strategic portfolio of insurance products may materially and adversely affect the business operations and prospects.

Choice Broking had said: “Going forward, due to its dominant market position, the company would benefit from the growth in the industry and favorable government policies.” However, the brokerage house had recommended “Subscribe with Caution” on New India Assurance shares, saying that investors can enter in this script at a lower price post listing and can hold it for a long period for better returns.

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