India’s largest life cover provider Life Insurance Corporation of India (LIC) made a lacklustre debut on the bourses on May 17, with declining nearly 9.4 percent after its initial public offering was subscribed nearly three times last week.
The stock opened at Rs 867.20, against an issue price of Rs 949 on the BSE and touched a high and a low of Rs 886.80 and Rs 860.10, respectively. At 10.05am, the scrip was trading at Rs 883.40 on BSE, down 7 percent from its issue price of Rs 949 a share. India's benchmark Sensex rose 0.62% to 53224 points.
Corrections in the equity markets globally seem to have hit the listing for the biggest public issue in the history of the Indian capital market. The situation was worsened by mounting inflationary pressure, stricter lockdowns imposed in China to combat Covid outbreak, and an unabated war on Ukraine by Russian forces.
After the debut in the market, LIC has become the fifth most-valued Indian listed firm with a market capital of Rs 5.71 trillion. Reliance Industries Limited is the nation's most valued firm with an MCap of Rs 16.42 trillion followed by TCS, HDFC Bank and Infosys Ltd.
While lower valuation, compared to peers, is positive, accumulated losses of Rs 6,028 crore, losing market share, weak digital presence and the perception that not all decisions taken by the largest life insurer in the country are not in sync with shareholder interests are worrying analysts.
“The valuation at Price to Embedded Value of 1.1 had discounted the above concerns but investors must be aware that the business of insurance is long term in nature and therefore we recommend investors to stay with the company for the long term,” said Aayush Agrawal, Senior Analyst, Swastika Investmart Ltd.
LIC had offered a discount of Rs 60 to its eligible policyholders while a discount of Rs 45 was offered to retail investors and employees which means the issue price is set at Rs 889 per share for its policyholders and Rs 904 per share for retail investors and employees.
Experts believe that even if there is a discounted listing, a category of investors will make some listing gains as the likelihood of the stock listing at a discount higher than the discount offered by LIC to these investors is bare minimum.
“LIC would be an outstanding stock to hold on to and it could become a constant compounder in people’s portfolios and has an exciting path ahead where many passive indices tracking India will include it in their baskets,” said Sonam Srivastava Founder, Wright Research. She recommends investors to hold on to the LIC shares.
The Rs 21,000-crore public issue was oversubscribed 2.95 times with bids worth Rs 45,000 crore received across investor categories.
The strongest response for the IPO came in from the LIC policyholders who submitted bids worth 6.12 times their allocated portion. In terms of total applications received, the policy holders accounted for 60 percent of the applications.
Strong response was also received from eligible employees of LIC who subscribed 4.40 times the portion reserved for them. The issues portion reserved for retail employees was subscribed 1.99 times. The non-institutional category witnessed subscription worth 2.91 times, while qualified institutional buyers’ category saw subscription of 2.83 times.
LIC is the largest life insurer in India across the parameters of GWP (gross written premium), NBP (new business premium), number of individual policies issued, and the number of group policies issued. It has a market share of 61.4 percent in NBP (individual and group), compared to the nearest competitor, which has a market share of 9.16 percent on an NBP basis (individual and group).
It is ranked fifth globally by life insurance GWP and 10th globally in terms of total assets. As at December 31, 2021, LIC had 2,048 branch offices and 1,559 satellite offices in India, covering 91 percent of all districts in the country. LIC has over 13.5 lakh agents who bring most of the new business.
At the end of FY21, LIC had assets under management (AUM) worth Rs 37,46,404.47 crore, a year-on-year growth of 10 percent from an AUM of Rs 34,14,174.57 crore in the previous financial year. During this period, the net profit of LIC jumped to Rs 2,974.14 crore from Rs 2,710.48 crore. For the period ended December 31, 2021, LIC had a total AUM of Rs 40,90,786.78 crore and reported a net profit of Rs 1,715.31 crore.
LIC has been consistently losing market share to private peers. The insurer holds 64 percent market share in terms of total life insurance premium. It grew at a compounded annual growth rate (CAGR) of 9 percent during FY16-21, while private insurers grew at 18 percent.
The government of India will still be the largest shareholder and key manager even after the IPO. Thus any future government intervention might be detrimental to shareholders.
LIC doesn’t have a strong digital presence and 90 percent of its policies are sold by agents. If this trend continues, then total cost is likely to increase for LIC, going forward.
However, Nitesh Shah, CEO-Wealth, Elara Securities India, believes that the long term prospects of LIC are very strong as it is the leading market player with more than 60 percent market share in life premium collection and listing of stock will also make LIC the most valuable and one of the largest market cap company on Indian Stock exchanges.
He bets his money on the stock from a long-term perspective.