Life Insurance Corporation of India (LIC), India’s largest life insurance provider, made a lacklustre debut on the bourses on May 17, falling about 9.4 percent after its initial public offering was subscribed nearly three times last week.
On the BSE, the stock began at Rs 867.20, against an issue price of Rs 949, and reached highs and lows of Rs 886.80 and Rs 860.10, respectively. The stock was trading at Rs 883.40 on the BSE at 10.05 a.m., down 7% from its issue price of Rs 949 a share. The benchmark Sensex in India increased 0.62 percent to 53224 points.
Global equity market corrections appear to have impacted the listing for the largest public offering in Indian capital market history. The situation was exacerbated by rising inflationary pressures, tougher lockdowns imposed in China to tackle the Covid epidemic, and Russia’s continuing war on Ukraine.
With a market capitalization of Rs 5.71 trillion, LIC has risen to fifth place among Indian listed companies. With an MCap of Rs 16.42 trillion, Reliance Industries Limited is the most valuable company in the country, followed by TCS, HDFC Bank, and Infosys Ltd.
While lower valuation in comparison to peers is a positive, analysts are concerned about accumulated losses of Rs 6,028 crore, loss of market share, a lack of digital presence, and the perception that not all decisions made by the country’s largest life insurer are in line with shareholder interests.
“The valuation at Price to Embedded Value of 1.1 had discounted the above concerns,” said Aayush Agrawal, Senior Analyst, Swastika Investmart Ltd. “However, investors should be aware that the insurance business is long term in nature, and we advise investors to stay with the company for the long term.”
LIC granted a Rs 60 discount to eligible policyholders and a Rs 45 reduction to retail investors and workers, resulting in an issue price of Rs 889 per share for policyholders and Rs 904 per share for retail investors and employees.
Experts feel that even if there is a cheap listing, certain investors will benefit from it because the possibility of the company listing at a discount greater than the discount granted by LIC to these investors is quite low.
“LIC would be an excellent stock to hang onto, and it could become a consistent compounder in people’s portfolios, with an interesting future ahead where many passive indices tracking India will include it in their baskets,” said Sonam Srivastava, Founder, Wright Research. She advises investors to keep their LIC shares.
The Rs 21,000-crore public offering was oversubscribed 2.95 times, with bids totaling Rs 45,000 crore received from various investor groups.
The LIC policyholders responded the most strongly to the IPO, submitting bids totaling 6.12 times their allocated portion. In terms of total applications received, policyholders represented for 60% of the total.
A strong response was also received from qualified LIC employees, who subscribed 4.40 times the amount set out for them. The retail employees’ issues segment was subscribed to 1.99 times. Non-institutional buyers were subscribed to 2.91 times, while eligible institutional buyers were subscribed to 2.83 times.
In terms of GWP (gross written premium), NBP (new business premium), number of individual policies issued, and number of group policies issued, LIC is India’s largest life insurer. It has a 61.4 percent market share in NBP (individual and group), compared to the nearest competitor, which has a 9.16 percent market share in NBP (individual and group).
It is rated fifth in the world in terms of life insurance GWP and tenth in terms of total assets. As of December 31, 2021, LIC had 2,048 branch offices and 1,559 satellite offices in India, covering 91% of the country’s districts. LIC has approximately 13.5 lakh agents who generate the majority of new business.
At the conclusion of FY21, LIC had assets under management (AUM) at Rs 37,46,404.47 crore, a 10% increase from the previous fiscal year’s AUM of Rs 34,14,174.57 crore. LIC’s net profit increased from Rs 2,710.48 crore to Rs 2,974.14 crore during this time period. LIC has a total AUM of Rs 40,90,786.78 crore as of December 31, 2021, and declared a net profit of Rs 1,715.31 crore.
LIC has continually lost market share to private competitors. In terms of overall life insurance premiums, the insurer controls 64% of the market. During FY16-21, it increased at a compounded annual growth rate (CAGR) of 9%, whereas private insurers grew at an 18% CAGR.
Even after the IPO, the government of India will remain the largest shareholder and key manager. As a result, any future government intervention could be harmful to shareholders.
LIC does not have a large web presence, and agents sell 90% of its insurance. If this tendency continues, the total cost of LIC would most likely rise in the future.
However, Nitesh Shah, CEO-Wealth, Elara Securities India, believes that LIC’s long-term prospects are very strong because it is the market leader with more than 60% market share in life premium collection, and stock listing will also make LIC the most valuable and one of the largest market cap companies on Indian stock exchanges.
He is making a long-term investment in the stock.
Disclaimer: The opinions and investment suggestions offered by Moneycontrol.com’s financial gurus are their own, not those of the website or its administration. Before making any investing decisions, Moneycontrol.com recommends that customers consult with professional experts.
Moneycontrol is a subsidiary of the Network18 company. Reliance Industries is the sole benefactor of Independent Media Trust, which owns Network18.