MUMBAI: Life insurance behemoth LIC on Tuesday listed at Rs 867, an 8.6% discount to its offer price of Rs 949 and closed the maiden trading day on the bourses at Rs 875, down nearly 8% from its IPO price. At the close of the session, shareholders in LIC lost about Rs 46,500 crore with the company’s market capitalisation now at Rs 5.5 lakh crore, compared to about Rs 6 lakh crore going by its IPO price.
The majority government-owned life insurer is now the fifth most valued company in India, behind RIL, TCS, HDFC Bank and Infosys but ahead of giants like HUL, ICICI Bank and SBI, data from BSE showed. It’s also the most valued PSU entity, ahead of SBI, ONGC and NTPC.
On Tuesday, nearly 5 crore shares changed hands on NSE while on the BSE the corresponding number was about 27.6 lakh.
In the run up to LIC’s listing, the premium in the unofficial grey market had vanished, which indicated a muted listing for the life insurer. Post listing, LIC’s policyholders who got the shares at Rs 889 and retail investors who were allotted at Rs 904, saw marginal losses to their holdings. Other shareholders were allotted the shares at Rs 949.
On May 9, LIC closed its Rs 21,000-crore IPO with a subscription figure of nearly three times. Its policyholders and retail shareholders led the subscription figures, along with some strong support from local institutions. Through the offer the government sold 3.5% of its stake, or about 22.1 crore shares of the life insurer.
A report by global financial house Macquarie put a price target of Rs 1,000 with a neutral rating. According to its analysts, volatility in LIC’s embedded value (EV) worried them. Unlike regular manufacturing and services companies which are valued based on their earnings-per-share or book value, insurance companies are valued by their EVs which take care of the value of the assets they hold.
According to the report, over time, LIC’s market share in individual business (retail) has fallen due to lack of a “diversified product portfolio and excessive focus on single premium and group business.” It’s to be seen if LIC is able to diversify its product mix in favour of high margin non-par products, they wrote.
Another point of concern for Macquarie analysts is the inherent volatility in LIC’s EV, given a large portion of its EV constitutes marked-to-market unrealised equity gains. “Any investor who is taking an exposure to LIC stock is indirectly taking an exposure to equity markets and the inherent volatility that comes with it,” its analysts led by Suresh Ganapathy wrote. They estimated that a 10% fall in equity markets can erode about 7% of LIC’s EV, compared to around 1-2% for its private-sector peers.