Why analysts are bullish on LIC IPO? Attractive valuation, discount for bidders

Market


LIC IPO (Initial Public Offering) is going to hit primary markets on 4th May 2022 i.e. tomorrow. Attractive valuation, discount for retail investors and insurance behemoth’s bid to protect its market share through increased focus on bancassurance and enhancing direct online sales of its products through its website are some of the positives that has made market analysts highly bullish on the public issue.

Giving ‘subscribe’ tag to LIC IPO, Yesha Shah, Head of Equity Research at Samco Securities said, “The demographical tailwinds, a moderate penetration of life insurance in India and a massive protection gap, will fuel the Indian life insurance industry’s multi-decadal growth. LIC, being the market leader, both in terms of GWP and NBP, is poised to benefit from this growth opportunity. While the fact that LIC has been losing market share as well as its lower than industry VNB margins do instill apprehension, LIC has indicated its plans to improve the two. The insurance behemoth aims to protect its market share through increased focus on bancassurance and enhancing direct sales of its products on its website. Further, 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.”

Yesha Shah of Samco Securities went on to add that from a valuation standpoint, at the upper band of the issue price, LIC is priced at 1.1x embedded value, which is at a significant discount to peers.

“Given the attractive valuation, the downside from here seems limited. Further the fact that a discount has also been offered to retail investors is the cherry on the cake. Taking into account all these factors, we have a SUBSCRIBE rating on this IPO,” said Yesha Shah of Samco Securities.

Abhay Doshi, Founder at UnlistedArena.com said, “The much awaited LIC IPO after a lot of consideration in terms of timing and valuations is now ready to go on floors. The Valuations fixed seems to be favorable for the investors, it seems that government has worked a lot on valuation part to lure investors. Undoubtedly, the market share of private sector peers is increasing but LIC has 64.1% share in terms of GWP whereas the next largest competitor has around 8% market share which is unparalleled globally. As on September 2021, LIC had 1,343,587 individual agents which makes their distribution network strong across the country. Sailing such huge PSU IPO is definitely a challenging task when the market situation is too dicey. However, reasonable pricing, discount to retail and policy holders should generate significant interest among all investor segments.”

On why one should subscribe to LIC IPO, Narendra Solanki, Head- Equity Research (Fundamental), Anand Rathi Shares & Stock Brokers said, “The Life Insurance Corporation (LIC) IPO looks appealing because it has approximately 30 crore policyholders and 13 lakh agents, accounting for 55 percent of the total agent network. The insurance behemoth has a market share of around ~64% of the sector’s total insurance premiums in FY21. Life insurance has been one of the fastest growing segments in India’s insurance market and recorded a premium income of over Rs.5.7 trillion in FY20. Of this, LIC had written premiums that amounted to around Rs.3.8 trillion.”

Narendra Solanki went on to add that as of 30th September 2021, LIC was India’s largest asset manager, with assets under management (AUM) of $39.55 trillion, more than 3.3 times the combined AUM of all private life insurers in India and more than 1.1 times the AUM of the whole Indian mutual fund industry. LIC’s investments in listed shares accounted for about 4% of the NSE’s entire market capitalization as of September 2021.

On LIC IPO review, Parth Nyati, Founder, Tradingo said, “LIC’s embedded value, which is a measure of the consolidated shareholder’s value in an insurance company, is around 5.4 lakh crores as of September 30, 2021. So, at a valuation of Rs. 6 lakh crores, the issue is priced at a Price to Embedded Value of 1.1, which is a discount compared to its listed Indian as well as global peers.”

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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