PIC’s upcoming FPO! Are you looking forward for the investment? Is Rs 799 a fair price for PIC’s FPO?

Company overview:

With the beginning of Poush month, investors are provided with an ample of opportunities for investment. The upcoming days will witness the issuance of FPO Premier Insurance Company limited.

This particular article, therefore, addresses the overall performance of Premier insurance Company limited (PIC). PIC is a non-life insurance company that has been operating in insurance industry with the objective of providing prompt services to its customers.

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Investment summary:

Investors interested to invest in PIC FPO can invest 10 units to 3250 units of shares @ Rs 799.

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Projected financial overview:

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PIC expects to increase its paid up capital, reserve and surplus and net profit after tax by 29.70%, 91.42% and 105.12 in FY 2074/75 as compared to the FY 2073/74. The company’s paid up capital will reach to Rs 51.44 crore after the issuance of FPO. However, the company has mentioned a paid up capital of Rs 58.17 crore in its projected FY 2074/75. The investors can thus, imply that PIC might distribute 13 to 14% bonus share for FY 2074/75 based on the differences. PIC should further hike its capital by 48.56 crore (94.40%) in order to meet the paid up capital requirement.

The projected balance sheet of PIC also shows that company will maintain it’s paid up capital at Rs 1.04 arba as of FY 2075/76. This amount will be 80% higher than the FY 2074/75. For the FY 2075/76, although PIC expects to increase its paid up capital by 80% in FY 2075/76, the company will be seen with comparatively lower increase in reserve fund and net profit in the same year. Investors can also imply that 75% to 80% bonus shares will be distributed for FY 2075/76, by the company in order to meet the capital requirement. For instance, in FY 2075/76 and FY 2076/77, the company will increase net profit by 39.07% and 49.42% respectively.

At the end of FY 2076/77, the paid up capital, reserve fund and net profit  will reach to Rs 1.15 arba, Rs 61.52 crore and 51.07 crore respectively. This implies that once the paid up capital requirement is met by PIC, it will increase the capital by mere 98.99%, reserve and surplus by 59.64% and net profit by 49.42%.

Financial performance:

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As we compare the financials of first quarters of FY 2074/75 and first quarter of FY 2073/74 of PIC, major implications can be drawn in terms of paid up capital, reserve and surplus, net profit, claims paid and claims outstanding. For instance, PIC has increased its paid up capital by 20% (i.e. 44.85 crore) as of first quarter of FY 2074/75 compared to FY 2073/74. The company has increased its reserve and surplus by a mere 6.78%. PIC’s reserve and surplus stands at Rs 13.16 crore as of Q1 of FY 2074/75. The company has also observed meager growth in terms of net profit by 3.94%. The net profit has increased form 2.04 crore (as of first quarter of FY 2073/74) to 2.12 crore (as of first quarter of FY 2074/75).

In terms of operation as of Q1 of FY 2074/75, PIC’s claims amount paid stands at Rs 12.75 crore while claim outstanding amount stands at Rs 106.01 crores. Finally, the company’s claims paid in units stand at 1009 units while claims outstanding stand at 3130 units.

The annualized EPS, P/E ratio and Net worth per share of the company stands at Rs 18.95, 85.95 times and Rs 211.96 respectively as of Q1 of 2074/75. Its EPS and P/E ratio have decreased by 13.35% and 26.05% while net worth per share increased by 3.51%.

Dividend by PIC:

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PIC is more focused in providing bonus share to its investors. As of FY 2072/73, it provided 15% bonus share while 0.79% cash dividend to investors.

52 weeks high low:

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As of 26th December, 2017, PIC’s share price stood at Rs 1,401. The price decreased by 41points as compared to the previous day (i.e. 25th December, 2017). Its stocks have been traded as high as Rs 1420 and as low as Rs 1401 on the day. The first transaction of the day stood at Rs 1,419. There were 3,778 units traded for the day. The high price of PIC (i.e. 1420) is 25.06% less compared to the yearly high price (i.e. Rs 1,895).

The local bourse of PIC is observed to be fluctuating throughout the year. On 28th December, 2016, the shares of PIC were traded at Rs 1,169. The price reached at its peak point with Rs 1880 on 26th July, 2017.  By then, it has been in downward trajectory with its price at Rs 1401 on 26th December, 2017.

Major shareholders of the company:

One of the critical aspects of the shareholders of PIC can be figured out from the attachment. The major promoters including one public shareholder are associated with ICTC Pvt. Ltd. These shareholders hold 13.79 lakh units of shares in the company. Among the total promoter’s shares, 49.18% out of 52.31% of shares belong to the promoters associated with ICTC Pvt. Ltd.

ICTC is one of the businesses established in 1975, which has been providing expert and unparalleled value added representation and licensing services to foreign principals from across the globe who may be seeking business activities in Nepal. It is a multi-faceted business house with interest in hydropower development, engineering and construction, IT, communication & service, beverage & service products, 5 star hospitality, insurance and finance sector and real estate.

However, a concrete conclusion cannot be drawn by solely studying the company promoters are associated with.

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Final say:

PIC’s Market Price hoovers around Rs 1401 on 26th December, however, the FPO has been priced at Rs 799. This can be an opportunity for profit for the investors as the shares can be grabbed at lower price. The net profit for investors would amount to approximately Rs 600 per unit. This amounts to approximately 75% of rate of return to investors at an investment of Rs 799. Similarly, those investors who seek for bonus share can invest in PIC because it has been providing bonus shares at 15% as of FY 2072/73. Therefore, those investors seeking profit can invest in PIC with the hope of good return.

After analyzing the projected balance sheet of the company, it is likely that the company will provide 13% and 80% bonus for the FY 2073/74 and FY 2074/75. Here, the cost that the investors will bear after the adjustment of 13% bonus shares from the net profit of FY 2073/74 will be around Rs 707 (i.e. 799/1.13) while approximately Rs 392 (i.e. 799/1.80) after 80% bonus shares of FY 2074/75.. The number of shares will increase through the issue of bonus shares if they hold PIC’s investment for two years. Thus, investors are likely to be benefited with a lower cost of Rs 392 after bonus adjustment.

In addition to this, the investors can also imply that if PIC decides to provide such excessive amount of bonus shares, the market price of PIC will see a sky rocketing rise in market price. Thus, investors can get an opportunity to grab return from their investment.

PIC ranks at 13th position in terms of net profit of non-life insurance companies as of Q1 of FY2074/75. ICRA has graded the company with ICRANP IPO3+ indicating average performance of the company. However, the company also has exposure in terms of 38 outlets in the country that shows its operation efficiency.  Yet, the decision of investment is all yours!

(Disclaimer: Any kind of information that is provided in the article should not be used as a sole advice or recommendation by investors in order to design their investment portfolio. So, before taking steps for any kind of the information, the investors are required to base their judgment on their own financial analysis, appropriateness of the information and seek independent financial advice. The information of the company has been taken from the authorized sources such as website of the company, NEPSE and financial reports of the company, any changes not updated in these may differ in the analysis. Invest at your own risk.)

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