GICRE – Should I Invest or Sell it ?

GICRE Buy Sell Ideas – The stock of General Insurance Corporation of India Limited, GIC Re (Mcap: Rs 35,974 crore), the state-owned largest reinsurance company in India, has rallied by over 40 per cent in the last two trading sessions on the news of Privatization i.e. the government is deliberating divestment in the reinsurer.

What should investors do?

Despite the huge rally, the market capitalization of GIC Re is still below its current net worth (including fair value changes). The stock is now trading 0.8 times its trailing book value (Q3 FY21 book value). While the current valuation looks attractive, we don’t see any upside trigger in the near term other than privatization.

Privatization can help unlock huge value in GIC Re. However, it is a lot trickier and very uncertain as GIC Re also administers the terrorism and the nuclear insurance pool for the Indian market. Also, the government has to first do away with the regulatory advantage given to GIC Re.

The Government of India currently holds around 86% in GIC Re. Instead of privatization, the government may go in for a stake sale of just 10-11 per cent which will help it meet the maximum shareholding requirement of 75 per cent. But that will lead to a huge supply overhang and cap upside in stock price. Hence investors need to tread cautiously.