People’s Insurance Limited (PIL) is gearing up for its Rs.750 million Initial Public Offering (IPO), which will be issued on December 16.
PIL is a fully-owned subsidiary of People’s Leasing & Finance PLC, which is in turn owned by the state sector People’s Bank. PIL engages in general insurance business.
Even though the average price derived through the residual income justified the price-to-book value and the median peer price-to-book value places the value per share at Rs.17.91, the issue will have an offer price of Rs.15 per share, providing the potential investors with an upside of 19.4 percent.
PIL will issue 50 million shares. The existing shares of the company are 150 million, with a capital of Rs.600 million. Following the IPO, the company will have a capital of Rs.1.35 billion represented through 200 million shares.
The company expects to open three new branches by 2017, bringing the total to five branches.
The capital expense per branch is Rs.1.5 million, with four employees per branch. The gross written premium (GWP) per branch is assumed to be Rs.25 million. PIL is aiming to open one new branch per year beyond 2017.
The company has hired 20 new marketing personnel for its retail business and has recruited further personnel for corporate and broker channels.
NDB Investment Bank Limited, Acuity Partners (Private) Limited and People’s Bank Investment Banking Unit are the joint financial advisors and managers to the IPO.
PIL is one of the top five general insurance companies according to GWP, according to the Central Bank. The country experienced a GWP growth of 3.7 percent in 2014.
The joint managers believe that PIL will achieve a compounded annual growth rate of 7.5 percent until 2019.
PIL’s GWP was Rs.3.44 billion in 2014, while the net earned premium was Rs.2.99 billion, and profit after tax was Rs.450 million.
The joint managers expect the figures to improve to Rs.3.71 billion in GWP, Rs.3.25 billion in net earned premiums and Rs.421.8 million in profit after tax for 2015.
The numbers are forecasted to improve to Rs.4.03 billion, Rs.3.53 billion and Rs.563.6 million, respectively in 2016, up to Rs.4.94 billion, Rs.4.33 billion and Rs.694.1 million, respectively by 2019.
PIL’s net claims ratio was 72.6 percent in 2014, declining from 83.6 percent in 2011. The industry’s average was 65.4 percent during the same period.
The joint managers said that this was due to PIL’s high proportion of captive business, which generally incur higher claims, and aggressive pricing at the establishment stage.
PIL’s capital adequacy ratio stood at 231 percent in June, well above the regulatory minimum of 120 percent. The joint managers say that the funds raised via the IPO will provide additional capital buffers.
The company’s assets were Rs.4.76 billion in 2014, expected to rise to Rs.5.13 at the end of the current financial year. The total equity of Rs.1.41 billion represented through Rs.600 million in stated capital and Rs.810 million in reserves, is expected to rise to Rs.1.51 billion in the same period.