Sagarmatha Insurance Vs Premier Insurance: An Exclusive Comparative Study
June 4, 2019 | Investopaper
The two general insurance companies, namely Premier Insurance (PIC) and Sagarmatha Insurance (SIC) have declared exclusive dividend this fiscal year. Premier Insurance announced 83.99 percent dividend including 79.79 percent bonus shares to the shareholders. Likewise, Sagarmatha Insurance has declared 86 percent bonus share to the shareholders. Both companies are likely to organize the upcoming AGM within the month of Ashad, 2076.
After the declaration of massive dividend, there was speculation of the rising share price of these companies among investors. However, opposite to the expectation, the share price of both companies has declined after the declaration of the bumper dividend. The major reason is that the investors had already anticipated the dividend before the declaration. Non-Life Insurance companies are required to meet the paid-up capital of Rs. 100 crores within this fiscal year. PIC has capital of Rs. 58.40 crores while SIC has capital of Rs. 53.83 crores. Both companies were short of Rs. 41.60 crores. and Rs. 46.20 crores respectively in order to meet the capital requirement.
Premier Insurance issued 659,565 units shares as FPO at Rs. 799 per share. The FPO was worth Rs.52.70 crores out of which almost Rs. 46.10 crores was placed into the reserve which could be distributed to the shareholders in the form of bonus shares.
On the other hand, Sagarmatha Insurance did not provide dividend in the previous fiscal year. The declaration of massive dividend is the combined dividend of two fiscal years. SIC earned almost Rs. 62 crores in the last two fiscal years due to which it was able to distribute such a huge dividend.
Investors are in dilemma as to why the shares of both companies are declining even if they have announced handsome dividend to the shareholders. Should they buy the shares to get the bonus shares? Or, should they sell the shares of both companies before they decline further. Let’s look into the fundamentals of both the non-life insurance and decide which course of action is wise enough to follow. The last traded price (as of Jestha 20, 2076) of PIC and SIC are Rs. 1,140 and Rs. 1,375 respectively.
Introduction of PIC and SIC
Premier Insurance Company (Nepal) Limited was incorporated in 1994. The company is formed by prominent entrepreneurs. Premier Insurance is led by Deputy CEO Mr. Sahadew Tiwari.
Sagarmatha Insurance Company Limited was incorporated in 1996. It is the first foreign joint venture company of Nepal in the General Insurance Industry. Its joint venture partner, Ceylinco Insurance PLC is a leading insurance company in Sri Lanka. Ceylinco Insurance PLC holds 20 percent equity shares in Sagarmatha Insurance. Sagarmatha insurance is promoted by the prominent entrepreneurs and leading industrial groups, such as Salt Trading Corporation, Golchha Organization, Jyoti Group and MC group of companies. The management team of Sagarmatha Insurance is led by the CEO Mr. Chunky Chettri.
Sagarmatha Insurance Vs Premier Insurance: Net Profit (Last 5 Years)
In terms of Net Profit, Sagarmatha Insurance (SIC) is a clear winner with more than the double net profit of Premier Insurance (PIC). PIC made a profit of Rs. 16.79 crores in 2074/75 while SIC made a net profit of Rs. 34.14 crores. While PIC has higher capital of Rs. 58.40, SIC has made a double profit of PIC. Looking at this scenario, the share price of SIC (Rs. 1,375) is priced relatively lower than PIC (Rs. 1,140). SIC is available at bargain level relative to PIC if we look at the earnings of both the companies.
| Net Profit (Rs. ‘crores’) | ||
| Fiscal Year | Premier Insurance (PIC) | Sagarmatha Insurance (SIC) |
| 2070/71 | 4.58 | 20.32 |
| 2071/72 | 13.12 | 7.51 |
| 2072/73 | 18.47 | 20.68 |
| 2073/74 | 15.59 | 27.62 |
| 2074/75* | 16.79 | 34.14 |
Note: *Based on the unaudited report due to unavailability of audited reports.
Sagarmatha Insurance Vs Premier Insurance: Dividend (Last 5 Years)
Excluding the currently declared dividend, both the insurance companies have provided an average dividend to the shareholders in the last 5 years. The good thing is that both companies have focused on bonus shares in order to increase their capital as preferred by Nepalese investors.
| Premier Insurance (PIC) | Sagarmatha Insurance (SIC) | |||||
| Fiscal Year | Bonus | Cash | Total | Bonus | Cash | Total |
| 2070/71 | 14 | 0.73 | 14.73 | 15 | 0.78 | 15.78 |
| 2071/72 | 30 | 1.58 | 31.58 | 23.75 | 1.25 | 25 |
| 2072/73 | 20 | 1.05 | 21.05 | 22 | 1.16 | 23.16 |
| 2073/74 | 13.52 | 0.71 | 14.23 | – | – | – |
| 2074/75* | 79.79 | 4.2 | 83.99 | 86 | – | 86 |
Financial Comparative Analysis: Ashad end, 2075
The performance of PIC and SIC in the fiscal year 2074/75 is shown in the table below. PIC leads in paid-up capital and reserves only. The growth in reserve is also due to the sale of shares through FPO which increased the reserve by Rs. 46 crores as explained earlier. On the other hand, SIC overtakes PIC in several other indicators. The total premium of SIC in 2074/75 is Rs. 183.79 crores while that of PIC is Rs. 155.68 crores. The net profit of SIC and PIC is Rs. 34.14 crores and Rs. 16.79 crores respectively. This gives Earnings Per Share (EPS) of Rs. 63.42 for SIC which is way higher than that of PIC (Rs. 28.75). SIC has higher Net-worth per share than that of PIC.
| Headings | Premier Insurance (PIC) | Sagarmatha Insurance (SIC) |
| Paid up capital (Rs. ‘crores’) | 58.4 | 53.83 |
| Reserve & Surplus (Rs. ‘crores’) | 65.05 | 52.4 |
| Insurance Fund (Rs. ‘crores’) | 40.09 | 48.88 |
| Total Premium (Rs. ‘crores’) | 155.68 | 183.79 |
| Net Premium (Rs. ‘crores’) | 81.82 | 86.48 |
| Net Claim(Rs. ‘crores’) | 42.01 | 44.4 |
| Total Outstanding Claim (Rs. ‘crores’) | 103.17 | 40.18 |
| Net Profit (Rs. ‘Crores’) | 16.79 | 34.14 |
| Earnings Per Share (Rs.) | 28.75 | 63.42 |
| Net-worth Per Share (Rs.) | 286.22 | 303.03 |
Financial Comparative Analysis: Third Quarter (Chaitra end), 2075/76
If we look into the more recent report of the third quarter of F.Y. 2075/76, we can see that the total premium collection of SIC is Rs. 158.95 crores and PIC has collected Rs. 121.33 crores in premium. The net premium of SIC stands at Rs. 83.61 crores while PIC has a net premium of Rs. 60.57 crores. SIC has a higher reserve and higher insurance fund than PIC. Sagarmatha has paid higher net claims while PIC has more total outstanding claims. Likewise, SIC leads PIC in net profit, EPS and Networth Per Share also.
| Headings | Premier Insurance (PIC) | Sagarmatha Insurance (SIC) |
| Paid up capital (Rs. ‘crores’) | 58.4 | 53.83 |
| Reserve & Surplus (Rs. ‘crores’) | 64.2 | 69.98 |
| Insurance Fund (Rs. ‘crores’) | 47.89 | 48.88 |
| Total Premium (Rs. ‘crores’) | 121.33 | 158.95 |
| Net Premium (Rs. ‘crores’) | 60.57 | 83.61 |
| Net Claim(Rs. ‘crores’) | 34.17 | 40.4 |
| Total Outstanding Claim (Rs. ‘crores’) | 96.39 | 88.4 |
| Total Reserves for outstanding claims and unlimited risks (Rs. ‘crores’) | 87.94 | 92.76 |
| Net Profit (Rs. ‘Crores’) | 15.03 | 17.19 |
| Earnings Per Share (Rs.) | 34.32 | 42.58 |
| Net-worth Per Share (Rs.) | 299.43 | 335.78 |
Decision:
The decision to invest lies solely in the hands of investors. However, if we have to choose, taking this as a guideline, it is better to invest in the shares of SIC even though both companies have announced an almost equal dividend to the shareholders from last year. If SIC can maintain or improve its profitability in the future years, the dividend of 20-30 percent can be expected on average for the foreseeable future.
