LIC shares: Emkay initiates coverage with target below IPO price
Premium- LIC shares made stock market debut on May 17, 2022
Brokerage and research firm Emkay has initiated coverage on LIC shares with a neutral view and has the stock's 12-month target price below its initial public offer (IPO) issue price.
The brokerage house said its neutral view is underpinned by various factors - low VNB relative to EV, which limits the potential-RoEV to near premium-unwind rate, lower APE growth and margin prospects vs. private sector peers, as LIC’s higher commission costs and opex limit the scope for product and channel diversification.
Another factor is inherent volatility in EV as approx 35% of non-par assets are in equity, and no track record of EV movement under the new fund bifurcation structure, the note stated.
“We use a 0.9x Jun’23 P/EV multiple to arrive at our TP, reflecting a 10% discount to EV for the lack of a track record of EV growth and higher volatility in the EV. While we appreciate LIC’s market-leading position and comfortable valuations, we prefer private sector peers that have better growth, profitability and therefore higher RoEV prospects," Emkay added.
LIC shares, that made stock market debut on May 17, 2022, has been trading below the IPO issue price and hit its lowest level since listing on Friday.
“LIC’s dominant share in the single-premium group fund management business artificially inflates its market share and deflates some of its cost ratios. Its commission and opex ratios are on the higher side vs. cost-efficient larger private players despite its massive scale. Adjusted for the group single-premium business and LIC’s almost ULIP less product mix, its persistency and surrender ratios are not impressive," the brokerage said.
The state-run insurance behemoth reported lower profit for the fourth quarter ending March 2022. In its first earnings release post shares listing, LIC posted a 17% decline in consolidated net profit to ₹2,409 crore for Q4 from ₹2,917 crore in the same quarter a year ago. The total income of the insurer increased to ₹2,12,230 crore, from ₹1,90,098 crore in the same period of the previous fiscal year.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.