Shikhar Insurance Company FPO Overview
ICRA Nepal Limited (ICRA Nepal) has assigned "IPO Grade 3+", indicating average fundamental, to the proposed Further Public Offerings (FPO) of Shikhar Insurance. ICRA Nepal assigns IPO grading on a scale of IPO Grade 1 through IPO Grade 5, with Grade 1 indicating strong fundamentals and Grade 5 indicating poor fundamentals. The grading of 3+ indicates a grading one notch higher than 3.
Shikhar Insurance has a promoter public shareholding ratio of 80:20. The current FPO has been announced to change this ratio to 70:30.
Company Profile
Shikhar Insurance Company Ltd. is a non-life insurance company. It was registered in the company registrar’s offce on 2/15/2061 and began commercial operations from 7/26/2061. The company’s headquarters is located in Thapathali, Kahmandu and has 6 branch offices inside Kathmandu and 20 branch offices outside Kathmandu. The company’s promoters include institutions such as Buddha Air, Yeti Airlines and Lomus Investment Pvt. Ltd.
The company’s reinsurers include General Insurance Corporation (India), ICICI Lombard, Sirius International, New India Assurance Ltd. and Iffco Tokio (India).
The company has an authorized capital of Rs.60 Crores, Issued capital of Rs.40.88 crores and Paid-up Capital of Rs.35.77 crores. The paid up capital of the company will reach Rs.40.88 crores after the issuance of the FPO.
The company’s portfolio is dominated by the vehicle segment accounting for more than 39% of the total premium collected last fiscal year. Agriculture segment saw the least total premium collection with less than 1% collected from this sector.
The company’s total premium collection has increased by 25.85% year on year and increased by 14.85% in the last fiscal year. Its marine sector grew the highest with 61.88% growth last year. All sectors reported growth in total premium collection last FY except the aviation sector which declined by 30.30% during last year.
As of Q1 2072, the company posted a net profit of Rs.4.23 crores. The company has Rs.33.74 crores in its insurance fund and Rs.42.33 lakhs in its disaster fund. The company’s total asset size is Rs.85.61 crores. The company has Rs.15.68 crores in its reserves this will increase by an additional Rs.28.10 crores after the taking into account the premium collected from the FPO.
For investors
Investors need not be much concerned about the effects of the April 2015 earthquake and its aftershocks. The earthquake does not seem to have deteriorated the company’s profitability or solvency due to adequate reinsurance arrangements.
According to the latest unaudited report, the company’s book value per share is Rs.239.19 and the annualized earning per share is Rs.47.35 suggesting relatively strong fundamentals.
The PE ratio of the company is 18.1 times whereas the average PE ratio of the non-life insurance sector is 50.19. This suggests the company may be undervalued.
The company is most likely to give out bonus shares above 20% to its shareholders. It has not made clear whether the FPO allotees will also receive this bonus. However, if it doesn’t distribute bonuses to the FPO allotees, the promoter-public shareholding ratio of 70:30 will not be maintained and the public shareholding will drop below 30% thus rendering moot the entire reason for issuing the FPO. It is almost certain that the FPO allotees will be participants to any dividends announced by the company.
The company is currently trading at Rs.857 per share (as of Dec 3, 2015). The prospects of receiving a stock dividend above 20% combined with relatively strong fundamentals of the company makes the FPO very attractive.
