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Tube Investments of India zoomed 12 per cent last Monday. This was after the diversified company announced a 14 per cent stake sale in Cholamandalam MS General Insurance the week before. For Tube Investments, this will help unlock value. At the deal value, the company’s remaining 60 per cent stake in the insurance business works out to about ₹200 a share of Tube Investments, about 45 per cent of its current market price.
The company has struck a good deal. The sale pegs the value of the insurance business at about ₹6,300 crore. This is about 3.3 times and 2.8 times 2014-15 and 2015-16 gross written premium (GWP), respectively.
The implied valuations of general insurance companies are one to two times their one-year forward GWP. HDFC’s stake sale in HDFC ERGO valued the business at about 1.5 times the one-year forward GWP. Max India’s stake sale in Max Bupa valued the health insurance business at about 1.9 times its one-year forward GWP.
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