Subscribe it, say experts

The ~21,000-crore initial public offering (IPO) of Life Insurance Corporation (LIC) of India will open for subscription on Wednesday. Ahead of the IPO, the public sector insurance behemoth raised ~5,627 crore from anchor investors, allotting around 59.3 million shares to 123 investors at ~949 per share.

While LIC policyholders are entitled to ~60 discount over the issue price, retail investors will be offered the issue at a discount of ~45 per equity share. The minimum bid lot is 15 shares and in multiples of 15 equity shares thereafter.

So, should you invest in India’s largest public offer to date?

Here’s what brokerages suggest.

Angel One

Valuations factor in most of the negatives. Expected improvements in the product mix and greater transfer of surplus to shareholders’ account over the coming years are expected to drive profits from the current low levels, which, along with cheap valuations, provide comfort. Moreover, the discount of ~45 and ~60 for retail investors and LIC policyholders makes the issue more attractive. We are assigning a ‘subscribe’ recommendation.

Geojit Financial Services

Due to a higher mix of non-linked and participating policies, LIC has a lower margin of 9.9 per cent as on 2020-21, compared to private players in a range of 20-25 per cent. Even though headwinds like declining market share, lower short-term persistence ratios, and subpar margins demand a discount to private players, the current valuation is attractive, considering its strong market presence and improvement in profitability due to changes in surplus distribution norms.

At the upper price band of ~949, LIC is available at a price/embedded value per share of 1.1x, which is at a discount of 65 per cent, compared to the average valuation of private life insurance players. We assign a ‘subscribe’ rating on a short- to medium-term basis.

SAMCO Securities

While the fact that LIC has been losing market share as well as its lower-than-industry value of new business margins instil apprehension, LIC has indicated its plans to improve both. It aims to protect its market share through increased focus on bancassurance and enhancing direct sales of its products on its website. By improving its share of non-participating products and protection plans, it aspires to improve its margins.

The long-term direction of LIC’S business and financial performance does hinge on good execution of these plans. Given the attractive valuation, the downside from here seems limited. We have a ‘subscribe’ rating on this IPO.

Incred

Although LIC retains market leadership in India with around 64 per cent share in new business premium as of end-september 2021, a dip in its share of individual business with nearly 44 per cent share is a clear disappointment. Our initial discussions with investors do highlight concerns around bureaucratic functioning, low margins, restricted free-float, and weak profitability. Also, with lower valuation and lower float, the stock will no longer be an index stock. However, the current pricing does mitigate most of these concerns and provides an attractive opportunity. We remain uncertain about initial listing gains, but do recommend investors to subscribe to the IPO for a mid- to longterm investment horizon

Fundsindia

LIC being the largest and most trusted insurance company in India, we are expecting to see a lot of first-time investors, especially from tier 2 and 3 markets to participate in this IPO. What investors will look for before investing in the IPO will be the penetration of LIC in markets untapped by private insurance players.

The IPO seems attractive on the valuation front. We feel positive about this listing.