LIC share hits all-time low, dips nearly 21% on issue price; what's bothering the counter?

Shares of insurance giant Life Insurance Corporation of India (LIC) continued its poor show post weak listing on the exchanges. On Tuesday, the Insurance behemoth stock declined to an all-time new low of Rs 752.30 per share on the BSE. This is a discount of 20.75% at the upper band of the IPO price of Rs 949 per share.

As on June 7, the stock has corrected around 8% in the last five trading sessions. Shares of LIC were listed at nearly 9 % discount on NSE, BSE. LIC shares debuted at Rs 867 and Rs 872 apiece on the BSE and NSE respectively last month.  

However, experts largely see a good future for the public sector insurer.  

Speaking on the correction in LIC shares, Manish Jeloka, Co-head Products & Solutions, Sanctum Wealth, said LIC's current business fundamentals lag behind its private peers, which is why the interest in the stock is also subdued.  

"However, notwithstanding the recent price action, LIC’s long-term path on the business front looks encouraging, especially in its non-par business," said Jeloka. 

He said LIC gets around 5% of its business from non-par policies, however, the profitability in those policies is 8x higher than that of par policies.  

LIC’s major focus now is to increase the share of non-par policies in total business given they are more profitable and profits are not shared with policyholders, said the expert.  

"Even a 10 percent increase in non-par business will lead to a significant boost in LIC’s profits, which should help improve LIC’s valuations too. This change, however, will be slow and hence valuation rerating will also be gradual," he added. 

Santosh Meena, Head of Research, Swastika Investmart Ltd, said the issue was priced at a price to the embedded value of 1.1x, which is a discount in comparison 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.  

However, we believe India's highly underserved life insurance market is still in its infancy and is well-positioned to capitalize on the enormous growth potential, he underlined.  

"LIC has a number of competitive advantages, including a strong brand value, a massive network of agents, and an enviable distribution network. So, investors with a long-term view can buy this stock at CMP and follow a buy on dip strategy," Meena added.  

At 3 pm, the counter trading with three per cent discount to Rs 754.05  per share on the BSE on Tuesday.