LIC down 20% from IPO price. Is there more pain ahead?

On Tuesday, the scrip tanked 3 per cent to hit an all-time low of Rs 753.35 on BSE while its market capitalisation (m-cap) slipped below the Rs 5 lakh crore mark to Rs 4,76,683 crore.

The insurance behemoth had made a tepid debut as it listed at a discount of 9 per cent against the IPO price. Even then, it became the fifth-largest listed firm by market capitalisation post debut, with m-cap of Rs 5.70 lakh crore.

Even as brokerages had assigned a favourable rating to the IPO, many analysts now suggest that the stock might be suitable for investors with a long-term view or having a higher risk appetite. They even see further selling pressure for the stock.

Ravi Singh, Vice President and Head of Research, ShareIndia, said LIC may witness some more selling pressure and can touch the levels of Rs 750-700 in coming trading sessions.

It’s advisable to exit the stock at current levels, however, high-risk appetite investors may hold their positions and wait for the trend reversal, he added.

“LIC shares have been marred by volatility since they debuted on the exchanges. The slowdown in earnings reported by the insurer last month did not help. Many analysts are sceptical about LIC’s ability to transform itself in the modern world as the management has projected,” said Sonam Srivastava, Founder at Wright Research.

The company last week, in its maiden earnings post listing, had reported a 17.41 per cent slide in the March quarter net profit to Rs 2,409.39 crore as against Rs 2,917.33 crore in the same quarter last year. Its net premium income stood at Rs 1,44,158.84 crore, up 17.88 per cent from Rs 1,22,290.64 crore in the corresponding quarter year ago.

Even though fast-moving indicators are still projecting a good growth in the current quarter, we would suggest investors to stay cautious, Srivastava added.

According to Santosh Meena, Head of Research,

, India’s highly underserved life insurance market is still in its infancy and is well-positioned to capitalize on the enormous growth potential.

“The issue was priced at a price to the embedded value of 1.1x, which is a discount compared to its domestic as well as global peers. This valuation discounts concerns with the company like losing market share to private players, lower profitability & revenue growth compared to private players, lower VNB margins and short term persistency ratios,” he said.

Although, he added that LIC has a number of competitive advantages, including a strong brand value, a massive network of agents, and an enviable distribution network. He further advised investors with a long-term view to buy this stock at the current market price and follow a buy on dip strategy.

Recently, Emkay Global initiated its coverage on LIC with a Hold rating and a target price of Rs 875, based on 0.9x June 23E EV.

“Our neutral view is underpinned by three 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; and inherent volatility in EV as ~35 per cent of non-par assets are in equity, and no track record of EV movement under the new fund bifurcation structure,” it said.

“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,” it said in its report.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)