{"id":10073,"date":"2017-10-12T15:20:46","date_gmt":"2017-10-12T09:50:46","guid":{"rendered":"https:\/\/www.moneyworks4me.com\/investmentshastra\/?p=10073"},"modified":"2020-03-05T12:32:33","modified_gmt":"2020-03-05T07:02:33","slug":"gic-re-ipo","status":"publish","type":"post","link":"https:\/\/www.moneyworks4me.com\/investmentshastra\/gic-re-ipo\/","title":{"rendered":"GIC Re IPO : Good business; Punchy valuations"},"content":{"rendered":"

Issue Open<\/strong>: Oct 11, 2017 – Oct 13, 2017
\nIssue Type<\/strong>: Book Built Issue IPO
\nIssue Size:<\/strong>\u00a0124,700,000 Equity Shares of Rs 5 aggregating up to Rs 11,372.64 Cr
\nFace Value<\/strong>: Rs 5 Per Equity Share
\nIssue Price<\/strong>: Rs 855 – Rs 912 Per Equity Share
\nMarket Lot<\/strong>: 16 Shares
\nMinimum Order Quantity<\/strong>: 16 Shares
\nListing At<\/strong>: BSE, NSE<\/p>\n

About the company<\/strong><\/p>\n

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

The company has exposure to domestic and international business. In FY17, reinsurance written for risks outside of India represented 30.5% of gross premiums. It has underwritten business from 161 countries and as on June 30, 2017 the company was ranked as the 12th largest global reinsurer in 2016 and the 3rd largest Asian reinsurer in 2015 in terms of gross premium accepted.<\/p>\n

The company\u2019s gross premiums on a consolidated basis have grown at a CAGR of ~48.7% over FY15-17 to ~` 33,741 cr. The company\u2019s gross premiums from international business have grown at a CAGR of ~24.9% over FY15-17 to ~` 10,300 cr.<\/p>\n

MoneyWorks4me Opinion<\/strong><\/p>\n

GIC Re is a re-insurer of General Insurance companies like ICICI Lombard and New India Assurance. Looking at the past track record we believe the underwriting process is prudent. Reinsurance sector is more about underwriting practices rather than distribution and growth. A good reinsurer finds unique bets where uncertainty is the highest and high premium more than justifies loss potential. Occasional loss is not uncommon in this sector. Sudden crack in geopolitical risk or act of God may dent its profit and loss statement and wipe out some of the reserves. But if all deals are signed with good risk reward scenarios, aggregate results are very good. Hence we can\u2019t discard lumpiness in results for such companies.<\/p>\n

Going forward, we believe the company is using its capital base to insure global players too. Insurance companies buy reinsurance spread across many reinsurers as one sudden blow can bankrupt one Reinsurer. This gives GIC Re a seat amongst large reinsurer table. Top 10 Reinsurance companies are based in UK, France, US and Germany. Renowned investor Warren Buffett to owns one of the top reinsurers, Gen Re. We have learnt a lot about insurance business from him. His crisp Letters to Shareholders are pleasure to read.<\/p>\n

We are wary of the valuations at which the reinsurer is offered on the block. Most of the investors on the street are ignoring risk and willing to pay 4X book value or 25X FY17 earnings for a business which may see occasional slump in earnings.<\/p>\n

We believe the street is missing the average run rate of earnings which Warren Buffett Popularised called as Earnings Power. Today\u2019s earnings are possibly higher due to generous investment income. The combined ratios are just bare minimum with lot of risk not materialized in current FY.<\/p>\n

The brokers are pushing this expensive deal by focusing on the growth rates which may not sustain for long. Bulk of the growth in last 3 years came from agriculture from the government pushed reforms. The growth rate from this may not last or a sudden Agri disruption could eat away entire year\u2019s profits.<\/p>\n

Its difficult to assign a fair value to a company unless we see the Cyclicity of the business and drivers for Return ratios. However, we are certain that doing reverse calculation of IPO offer price, the estimates built in are quite steep. We do not have margin of safety nor the room for error on risk materializing.<\/p>\n

Even if the business model is good and valuations are stretched, we recommend\u00a0AVOID.<\/strong><\/p>\n

Click here to know valuation risks in your portfolio for free.<\/a><\/p>\n

As lot of hands are chasing handful of stocks, IPO issues may experience rapid increase in share price in short term. You may wish to \u2018speculate\u2019 with small capital.<\/strong><\/p>\n

But as an advisor, our duty to inform you what is right<\/strong>\u00a0and refrain you from risk taking behaviour in this market. We will definitely recommend you select issues which are worth investing. We are equally interested in making money as you are!<\/p>\n

If you liked what you read and would like to put it in to practice Register at MoneyWorks4me.com<\/a>. You will get amazing FREE features that will enable you to invest in Stocks and Mutual Funds the right way.<\/p>\n

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Issue Open: Oct 11, 2017 – Oct 13, 2017 Issue Type: Book Built Issue IPO Issue Size:\u00a0124,700,000 Equity Shares of Rs 5 aggregating up to Rs 11,372.64 Cr Face Value: Rs 5 Per Equity Share Issue Price: Rs 855 – Rs 912 Per Equity Share Market Lot: 16 Shares Minimum Order Quantity: 16 Shares Listing […]<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[822],"tags":[],"modified_by":"MoneyWorks4me","_links":{"self":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts\/10073"}],"collection":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/comments?post=10073"}],"version-history":[{"count":0,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts\/10073\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/media?parent=10073"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/categories?post=10073"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/tags?post=10073"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}