When a small company decides to list its shares on a stock exchange, there could be two major driving forces: the need for liquidity and motivation to grow and expand.
The same is the case with TPL Direct Insurance Limited, a subsidiary of TPL Trakker Limited. Its a small company with a pre-IPO share capital size of Rs310 million, which has opted to put a portion of its business up for sale.
TPL Direct aims to raise a total of Rs150 million by selling 15 million shares at Rs10 each. Since the insurance provider has already sold 10 million shares during the book building process at the floor price of Rs10 per share, only five million shares will be on offer for sale to public, starting today.
To market its shares, the company boasts an innovative business model to provide insurance services as well as high revenue growth numbers. Data complied from industry sources suggests that TPLs premium registered an average growth rate of 40 percent between 2007 and 2010 against the industrys average of eight percent. The parent company took the operations of the company from Jupiter Insurance Company Ltd in 2005.
However, small IPOs are greeted with caution. If the carrying value of a companys assets is below its par value, investors interest in the stock remains subdued. TPLs book value per share stood at Rs6.31 in 2010, while the company registered negative bottomline in three out of the past six years.
Pakistan Credit Rating Agency has maintained the companys rating at A-, which implies a strong capacity to meet obligations towards policyholders and contracts. However, the outlook on the rating was kept negative, on account of higher financial risk stemming from low liquidity.
The purpose of the listing also mirrors the liquidity issues as the company intends to retire short-term running finance amounting to Rs45.7 million and would utilise remaining funds for support of existing working capital requirement and to meet the financing of the launch of new products.
Still, as the stock market community indicates, the low loss ratio is TPLs major strength since 95 percent of the insurers existing business is from the auto segment where installed trackers increase the chances of car recovery after theft. The insurers unique service model along with an untapped market also provides a huge growth potential to excel in its target market.