TPL looking for equity raise up to Rs 50 million through IPO

TPL Direct Insurance Limited (TPL) is looking for raise up to Rs 50 million through an initial public offering (IPO) started on Monday and to close on August 4, 2011. The TPL has already raised Rs 100 million through the book building process. "The cumulative equity injection of Rs 150 million into the company is expected to support the existing and future working capital requirements", Atif Zafar, an analyst at JS Global Capital, said.
He said that the company planned to offer 5 million shares to the general public at Rs 10, strike price determined through the book building process. The IPO opened on Monday and to close on August 4, 2011. The company has already raised Rs 100 million through the book building process by offering 10 million shares at a strike price of Rs 10.
The injection of additional equity into the company will support the existing working capital requirements, he said adding the proceeds will also help meet the enhanced working capital requirements arising from the launch of new products. The company plans to launch Home Insurance, Health Insurance, Bancassurance and new products for motor insurance.
TPL was launched in 2005 as the first direct insurance company in Pakistan with over 12,000 customers. It operates through 5 major cities, ie, Karachi, Hyderabad, Multan, Faisalabad and Islamabad. The company operates with a focused approach, emphasising on niches where it has an advantage.
The car insurance provides synergies with its parent entity. As a result, motor portfolio of the company contributes 99.81 percent to the total premium underwritten. TPL shares 4.3 percent of the industry's motor premium. Auto Direct: This product includes comprehensive insurance, covering risks against damage, theft and third party liability.
Travel Direct: Comprehensive package tailored for overseas visits. It covers medical, death and loss of passport, baggage, credit cards amongst others. Home Direct: Provides home protection from fire and burglary. Bancassurance Direct: Covers ATM withdrawals, accidents & protection plans. Health Direct: Provides highest cover for hospitalisation ranging from Rs 60k to Rs 500k.
The IPO is being offered at Rs 10, which is higher compared to its book value of Rs 6.31 (December 2010). The rationale provided for offering above the book value is that the company enjoys the lowest claim ratio in the industry at around 40 percent. It has the lowest credit period in the industry with 12,000 customers. PACRA has assigned a rating of A-. "However, we believe the offering appears to be slightly expensive compared to industry's average PBV of 0.78x", Atif said. At Rs 10, the PBV for TPL computes at 1.58x, he added.