GIC Re: Why you Could Subscribe To The IPO?

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GIC Re is India's largest reinsurance company. It is not only the largest, but, also has a dominance, controlling almost 60 per cent of the premiums ceded by Indian insurers to reinsurers. The Initial Public Offering (IPO) of the company is also the largest from a government owned company after Coal India. The size of the offering is a staggering Rs 11,372 crores. Let us see some reasons on whether you should invest in this IPO.

Details of the scheme

The IPO would open on Oct 11 and close on Oct 15. The shares are being issued at a face value of Rs 5 in a price band of Rs 855 to Rs 912. The lot size of the issue is 16 and the minimum amount required to invest would be Rs 14,492 crores.

The issue is a combination of both offer for sale and also to rise fresh resources. The amount raised would be used to augment fresh resources and for other corporate purposes.

Financials of the company

GIC Re writes reinsurance for every non-life and over half of the life insurance companies in India. The re insurance market is growing at a decent rate of 11 to 13 per cent, which is a big positive for the company.

GIC Re has an investment book of nearly Rs 69,000 crores, which is very large in itself. The company was ranked as the 12th largest global insurer in the world in 2016. The company also underwrote reinsurance business in as many as 162 countries.

"Syndicate business is on the cards. If any right target for acquisition comes up on the way, we will pick it up," Alice G. Vaidyan, chairman and managing director, GIC Re said recently.

Not very expensive

While GIC Re will be the only listed company in the re- insurance space, one would do well to compare with other life and general insurance companies.

SBI Life shares were recently offered at a whopping 70 times p/e, while ICICI Pru and ICICI Lombard are available at p/e ranging from 40 to 50 times. This makes GIC Re among the cheapest insurance company stocks to buy for the long term.

However, the reinsurance business has some high risks, which investors should not ignore. As mentioned earlier, there could be some listing gains that could emerge.

Financials of the company

GIC Re reported a net profit of Rs 3,140 crores for the year ending March 31, 2017. The gross premium for GIC was Rs 33,741 crores during the period.

The company is looking at expanding its international business in the coming years, which should augur well for it. On the basis of the FY 2016-17 EPS of Rs 36.5, the P/E works to around 25 times, on the higher price band of Rs 910.

Considering the size of the company and its dominance in the re insurance business, it cannot be considered as very expensive. There is a possibility of listing gains that could arise considering the huge appetite for IPOs currently.


This article is strictly for informational purposes only. It is not a solicitation to buy, sell in securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author of this article do not accept culpability for losses and/or damages arising based on information in this article. 



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