- Date : 17/05/2022
- Read: 3 mins
LIC's share price valuation of 1.1 times its embedded value is better than other listed life insurance companies. The change in surplus distribution policy is shareholder-friendly. Life insurance in India is a long-term structural growth story. Considering these factors, should you hold or buy LIC shares?
LIC’s lacklustre stock market debut
The Life Insurance Corporation (LIC), India’s largest life insurance company, made its debut on the stock exchanges on 17th May 2022. However, the debut was tepid at Rs. 872 on the NSE against the LIC IPO price of Rs. 949, a discount of 8%. Most investors who participated in the LIC IPO are wondering whether to sell, hold, or buy more. Let us discuss.
Also Read: LIC IPO: Determining The Value Of An Insurer's Growth Potential
1) LIC valuation is reasonable compared to listed private life insurance companies
One of the ways of valuing life insurance companies is using the embedded value (EV). At the time of the LIC India IPO, the EV was estimated at Rs. 5.4 lakh crore. The LIC IPO share price valued the company at 1.1 times its EV, which is reasonable compared to other listed life insurance companies. HDFC Life, SBI Life, and ICICI Prudential Life trade at 2-4 times the EV.
2) India is an underpenetrated life insurance market
In India, the life insurance penetration is less than 5%. Even among the people who already have life insurance, many of them are underinsured. Life insurance in India is a structural long-term growth story that can go on for many years or a couple of decades. With a more than 60% market share and its wide reach, LIC can benefit from the life insurance growth story.
Also Read: How To Apply For LIC IPO If You Are A LIC Policyholder
3) Change in LIC’s surplus distribution policy
Earlier, LIC followed the 95:5 surplus distribution policy. As per this policy, the LIC policyholders got 95% of the surplus, and the shareholders got 5% of the surplus. In the future, the LIC surplus distribution policy will change as follows:
The above change in surplus distribution policy is shareholder-friendly and will entitle shareholders to higher dividends in the future.
Considering all the above three factors, shareholders who got allotment should consider holding on to their shares for the long term. Due to high inflation and central banks increasing interest rates, the stock markets are in correction mode. If there is a bigger correction in overall stock markets and LIC share price, investors may consider buying some more shares in a staggered manner.
Also Read: LIC IPO Date And Price Band Announced
LIC IPO details
The LIC IPO date for subscription was 4th - 9th May 2022.
The LIC IPO amount was Rs. 14,235 for one lot of 15 shares.
The overall IPO got oversubscribed 2.95 times, with the maximum oversubscription coming from the LIC IPO policyholders category (6.12 times).
LIC’s lacklustre stock market debut
The Life Insurance Corporation (LIC), India’s largest life insurance company, made its debut on the stock exchanges on 17th May 2022. However, the debut was tepid at Rs. 872 on the NSE against the LIC IPO price of Rs. 949, a discount of 8%. Most investors who participated in the LIC IPO are wondering whether to sell, hold, or buy more. Let us discuss.
Also Read: LIC IPO: Determining The Value Of An Insurer's Growth Potential
1) LIC valuation is reasonable compared to listed private life insurance companies
One of the ways of valuing life insurance companies is using the embedded value (EV). At the time of the LIC India IPO, the EV was estimated at Rs. 5.4 lakh crore. The LIC IPO share price valued the company at 1.1 times its EV, which is reasonable compared to other listed life insurance companies. HDFC Life, SBI Life, and ICICI Prudential Life trade at 2-4 times the EV.
2) India is an underpenetrated life insurance market
In India, the life insurance penetration is less than 5%. Even among the people who already have life insurance, many of them are underinsured. Life insurance in India is a structural long-term growth story that can go on for many years or a couple of decades. With a more than 60% market share and its wide reach, LIC can benefit from the life insurance growth story.
Also Read: How To Apply For LIC IPO If You Are A LIC Policyholder
3) Change in LIC’s surplus distribution policy
Earlier, LIC followed the 95:5 surplus distribution policy. As per this policy, the LIC policyholders got 95% of the surplus, and the shareholders got 5% of the surplus. In the future, the LIC surplus distribution policy will change as follows:
The above change in surplus distribution policy is shareholder-friendly and will entitle shareholders to higher dividends in the future.
Considering all the above three factors, shareholders who got allotment should consider holding on to their shares for the long term. Due to high inflation and central banks increasing interest rates, the stock markets are in correction mode. If there is a bigger correction in overall stock markets and LIC share price, investors may consider buying some more shares in a staggered manner.
Also Read: LIC IPO Date And Price Band Announced
LIC IPO details
The LIC IPO date for subscription was 4th - 9th May 2022.
The LIC IPO amount was Rs. 14,235 for one lot of 15 shares.
The overall IPO got oversubscribed 2.95 times, with the maximum oversubscription coming from the LIC IPO policyholders category (6.12 times).
