LIC Debuts on Dalal Street: Macquarie sets target price at Rs 1,000
Macquarie added that inherent volatility in Embedded Value is another big challenge given a substantial portion of EV constitutes marked-to-market unrealised equity gains.
- May 17, 2022,
- Updated May 17, 2022 11:13 AM IST
Shares of India’s largest life insurance company Life Insurance Corporation (LIC) listed at Rs 867.20 on BSE, a discount of 9 per cent against the IPO issue price (Rs 949).
Brokerage firm Macquarie has initiated its coverage on LIC with a 'Neutral' stance and has a target price of Rs 1,000. Following its recent reorganisation, the company is set to increase its share of non-participating pure protection products which currently form just ~5-6% of its overall product portfolio, it said.
However, it noted that the ability to sell high-margin non-par products - as opposed to par products that provide policyholders a significant share of policyholder’s surplus - will require a change in the mindset of the organisation and its agency force, which could be LIC’s biggest challenge.
Macquarie added that inherent volatility in Embedded Value (EV) is another big challenge given a substantial portion of EV constitutes marked-to-market (MTM) unrealised equity gains.
"We value the stock on an appraisal value method by using FY23E EV and a P/VNB multiple of 10x on FY24E VNB to arrive at a Rs 1,000 target price. Our VNB multiple implies a 13% 15-year VNB CAGR, it said.
"While the overall market share of premiums has been around ~60%, LIC has been losing market share on an individual APE basis over the years owing to lack of a diversified product suite. However, post listing, we expect LIC to scale up its non-par portfolio," Macquarie said in its recent report.
The IPO was subscribed 2.95 times on the final day (May 9). The share sale received bids for over 47.83 crore (47,83,67,010) shares against the total issue size of over 16.20 crore (16,20,78,067) shares.
While the portion meant for policyholders was subscribed 6.1 times, the employees' portion was booked 4.4 times.
Shares of India’s largest life insurance company Life Insurance Corporation (LIC) listed at Rs 867.20 on BSE, a discount of 9 per cent against the IPO issue price (Rs 949).
Brokerage firm Macquarie has initiated its coverage on LIC with a 'Neutral' stance and has a target price of Rs 1,000. Following its recent reorganisation, the company is set to increase its share of non-participating pure protection products which currently form just ~5-6% of its overall product portfolio, it said.
However, it noted that the ability to sell high-margin non-par products - as opposed to par products that provide policyholders a significant share of policyholder’s surplus - will require a change in the mindset of the organisation and its agency force, which could be LIC’s biggest challenge.
Macquarie added that inherent volatility in Embedded Value (EV) is another big challenge given a substantial portion of EV constitutes marked-to-market (MTM) unrealised equity gains.
"We value the stock on an appraisal value method by using FY23E EV and a P/VNB multiple of 10x on FY24E VNB to arrive at a Rs 1,000 target price. Our VNB multiple implies a 13% 15-year VNB CAGR, it said.
"While the overall market share of premiums has been around ~60%, LIC has been losing market share on an individual APE basis over the years owing to lack of a diversified product suite. However, post listing, we expect LIC to scale up its non-par portfolio," Macquarie said in its recent report.
The IPO was subscribed 2.95 times on the final day (May 9). The share sale received bids for over 47.83 crore (47,83,67,010) shares against the total issue size of over 16.20 crore (16,20,78,067) shares.
While the portion meant for policyholders was subscribed 6.1 times, the employees' portion was booked 4.4 times.