Life Insurance Corporation of India (LIC) shares got off to a slow start in the stock markets today, trading below the initial offering price. Shares of the insurance giant were trading at Rs 865 per share on the BSE and NSE as of Tuesday morning, down 8.62% from the IPO price of Rs 949 per share. He raised around Rs 21,000 crore through the sale of a 3.5% stake in the state insurance company. LIC received a good response from domestic investors during the initial share sale. The IPO closed with nearly triple the subscription. The IPO ended on May 9 and shares were allotted to bidders on May 12.
Private and LIC policyholders get a rebate of Rs. 45 and rupees. 60 at issue price. At the higher end of the price range, LIC's IPO is valued at an embedded value (P/E) of 1.1x, a significant discount compared to other public life IPOs such as HDFC Life, ICICI Pru Life and SBI Life. While LIC valuations appear cheap compared to privately listed players, investors should note that as of 9MFY2021, LIC has a 9.3% lower VBN spread compared to listed players, they have VNB margins of 25 to 27% This is mainly due to the higher proportion of low-margin group and investment insurance products in the LIC portfolio.
Yash Gupta, Equity Research Analyst, Angel One Ltd. said: “While LIC has concerns about losing market share in the individual insurance industry and historically low margins, we believe valuations are the most negative impact. Expected product line improvements and increased surplus transfers to shareholders in the coming years should boost earnings from current low levels. Moderate gains are expected given the unfavorable market conditions. However, cheap valuations relative to other listed players offer consolation and investors with longer time horizons can hold their positions, while short-term retailers can close their positions in case profits are booked.”
LIC is expected to have a lackluster start when it lists on Indian stock exchanges on Tuesday, although the IPO was oversubscribed, analysts said.
Aayush Agrawal, Principal Analyst at Swastika Investmart Ltd., said: “We expect LIC to remain flat tomorrow based on the current market situation. Due to rising inflation statistics, FII outflows, currency weakness, geopolitical concerns and rising interest rates, today's markets are experiencing exceptional volatility that has led to sell-offs in the markets.
“LIC is synonymous with insurance in India and enjoys a strong competitive advantage in terms of brand equity and an extensive agent network. However, there are concerns about the company, such as B. loss of market share to private players, lower profitability and revenue growth than private players, lower DSO margins and lower short-term persistence ratios, but the built-in price-value score of 1.1 had the above discounted. Issue. However, investors should be aware that insurance transactions are long-term in nature; Therefore, even if the company is trading at a discount, we advise investors to hold onto the company for the long term,” added Agrawal.
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