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2 min read . Updated: 17 Feb 2022, 12:05 AM IST State-owned Life Insurance Corporation of India might seem stodgy, but it benefits from a dominant market position and looks cheap compared with peers
Enthusiasm for shares of India’s new, recently listed technology companies is fizzling out. An old state-owned insurance behemoth is trying to position itself as a more sturdy offering in its coming record listing.
The initial public offering of the 65-year-old Life Insurance Corporation of India, or LIC, could raise around $8 billion, making it by far the country’s largest listing to date. The previous record was set only last year by the $2.5 billion IPO of One97 Communications, which owns mobile-payments company Paytm. LIC’s listing would also be the world’s second-largest IPO this year so far, according to Dealogic. The state-owned insurer, which used to be a monopoly, still has nearly two-thirds of the life-insurance market, with around 280 million individual policies in force.
LIC’s market value could reach $160 billion, assuming it sells 5% of the company for $8 billion. That would put it ahead of China’s Ping An Insurance as the world’s most valuable life insurer.
Sour sentiment after recent IPOs, however, might weigh on new entrants—even those of a very different stripe from flashy tech firms. Paytm has lost more than half of its value since its IPO in November. Some other technology companies that went public last year like food-delivery company Zomato have also plunged from their peaks.
Still, LIC, being a household name, might find it easier to garner support from individual investors, who have been a main driving force for the Indian stock market of late. Many of its policyholders might also be willing to put their money into the stock.
At $160 billion, LIC would trade at around 2.2 times the embedded value stated in its prospectus. Embedded value measures the present value of the future income from an insurer’s policies. That is cheaper than some of its listed peers like HDFC Life and SBI Life, which is backed by a government-owned bank. But overall, Indian insurers are trading at a significant premium over their regional peers. Many Chinese insurers trade below their embedded values, for example.
While the company is an undisputed market leader, it is facing challenges from private rivals. It lags behind in terms of investment-linked insurance policies. Almost all of its policies are sold through its vast network of agents, while many of its rivals are selling through banks or directly online.
Stodgy state-owned firms don’t typically rouse investor excitement. With Indian inflation on the rise, the risk of tighter monetary policy is edging up, usually not a good thing for stocks. Still, individual investor enthusiasm is likely to give the stock a shot in the arm, at least at first.
Longer term, the company will need to show it can maintain its dominant position—and justify its price premium against regional peers—in an increasingly wired-in India.
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