LIC hits new low since listing; market cap falls below Rs 5 trillion

Since listing, LIC has lost Rs 56,000 crore of market-cap from Rs 5.54 trillion to Rs 4.98 trillion

Shares of Life Insurance Corporation of India (LIC) declined 2.86 per cent to Rs 777.40 apiece on the BSE on Monday, hitting their lowest level since listing. As a result, the market capitalisation (m-cap) of the state-owned life insurer fell below the Rs 5-trillion mark.

The stock declined for a fifth straight day, sliding 6 per cent during this period. By comparison, the S&P BSE Sensex shed 0.83 per cent in a week. LIC had made a weak debut on May 17, listing nearly 8 per cent below its issue price. With Monday’s fall, LIC has slumped 17 per cent below its issue price of Rs 949 per share.

The Rs 20,557-crore initial public offering (IPO), India’s largest ever, was subscribed just 2.95 times. While retail investors were allotted shares at Rs 905 apiece, LIC’s policyholders were allotted shares at Rs 889.
 

Last week, brokerage firm Emkay Global Financial Services initiated coverage of LIC with a ‘hold’ rating and a target price of Rs 875 – up around 12 per cent from current levels.

Highlighting the rationale behind the view, the brokerage said the state-owned insurer is underpinned by three factors: Low value of new business (VNB) relative to embedded value (EV), which limits the potential RoEV; lower annual premium equivalent (APE) growth and margin prospects versus private sector peers, as LIC’s higher commission costs and opex limit the scope for product and channel diversification; and inherent volatility in EV as 35 per cent of non-par assets are in equity with no track record of EV movement under the new fund bifurcation structure.

Though analysts remain optimistic of LIC’s market leadership and comfortable valuations, they prefer private sector peers with better growth and profitability outlook, thereby, generating higher RoEV.

Twists and Turns

FEB 2020

The government first announced its plans to sell its stake in LIC through an initial public offering to meet $29.6 billion state asset divestment target for FY21. However, its plans were derailed as the Covid-19 pandemic struck

FEB 2022

The central government filed papers with Sebi for IPO approval to sell nearly 5 per cent stake in the insurance company, drastically cutting down its divestment target. The IPO's size at that time was pegged at Rs 60,000 crore, while LIC’s valuation was pegged at Rs 12 trillion

MAR 2022

The govt again lowered its dilution considering the risk-off sentiment among FPIs in the backdrop of the Russia-Ukraine war and monetary policy tightening by the US Fed. It filed fresh papers with Sebi in March after obtaining special permission to sell its 3.5 per cent stake in the firm to raise Rs 21,000 crore

MAY 2, 2022

LIC received strong demand from anchor investors who oversubscribed at the upper end of the price range. Nearly 732 million shares were reserved for the anchor investors

MAY 4, 2022

• The LIC IPO opened for retail and other investors. The price band was set at Rs 902-949 per share, with an additional discount of Rs 45 for retail investors and Rs 60 for policyholders. with the minimum bid lot size being 15 shares

• LIC IPO was fully subscribed on day 2 and was oversubscribed by three times till May 9. It saw the highest participation of over 7 million small investors.

MAY 17, 2022

• LIC made its debut at nearly 8% discount, listing at Rs 867.20. This resulted in sharp fall of LIC m-cap at Rs 5.57 trillion, a loss of Rs 42,500 crore.