The government on Friday said it was “very concerned” about the sharp decline in the Life Insurance Corporation of India (LIC) stock after the insurer’s listing, and said its management will look into all aspects of the fall, keeping investors’ interest in mind. The LIC stock, having fallen for the ninth consecutive session, closed at Rs 709.70 apiece on Friday.
At the current price, the insurer’s market capitalisation is just Rs 4.49 trillion, down 25.4% from Rs 6.02 trillion, the value as per the issue price of Rs 949. While the lock-in period for anchor investors will end on Monday, selling pressure on the stock is apparently not easing.
Speaking to reporters here, Tuhin Kanta Pandey, secretary at the department of investment and public asset management (DIPAM), said the stock’s fall was a “temporary blip as investors are taking time to understand the fundamentals of the company and its business profile”. Pandey added that the LIC management would “look into all these aspects with a view to raising the shareholders’ value”.
The official said LIC’s embedded value (EV) will be updated by month-end, taking into account the March quarter results. “The market doesn’t have updated EV for reference, hence it is conjecturing. Rate of future growth of insurance companies can be assessed only via EV. The increased EV, as at March-end, will give a forward-looking view to the market as it will also include the number of new customers for the insurer,” Pandey said.
According to experts, lack of interest from foreign investors in LIC, volatility in the overall equity markets and the poor March quarter results have impacted the stock performance. Speaking to FE earlier, VK Vijayakumar, chief investment strategist, Geojit Financial Services, said, “LIC’s issue price at 1.1 times embedded value was fair, however, the poor market sentiments and poor Q4FY22 results have impacted sentiments for the counter.”
As per the papers filed with the Securities and Exchange Board of India (Sebi) for the IPO, LIC’s embedded was Rs 5.4 trillion at the end of September 2021.
In its first earnings report after listing, LIC posted a 17.4% decline in net profit at Rs 2,409.39 crore in the March quarter against Rs 2,917.33 crore in the year-ago period. However, the insurer’s management said the numbers were not comparable. The firm had reported net profit of Rs 234.91 crore for Q3FY22, up from Rs 94.23 lakh in the year-ago period. In FY21, it reported a net profit of Rs 2,734.34 crore, an increase of 14% over the previous year.
LIC manages as many as 300 million life insurance policies. Most of the policies are “participatory” in nature, meaning policyholders get the most of its profits. The policyholders’ share in profits will decrease to 92.5% from April 2022 and go down further to 90% in FY25, thereby increasing returns for shareholders from a larger pool) of profits.
LIC is changing its business strategy by focusing more on the non-participatory policy segment, where most of the profit accrues to shareholders, which would boost its EV going forward, analysts feel.