As Life Insurance Corporation (LIC) gears up for its Rs 65,000-crore initial public offering (IPO), analysts are assessing how the Street will respond to the state-run life insurance behemoth.
NSE
According to UBS, the market could be assigning a valuation discount to LIC compared to its listed peers, owing to its traditionally savings-heavy business mix, lower operating leverage, heavier dependence on the agency channel and state-owned enterprise (SOE) status.
ALSO READ
: NSE, BSE give nod to LIC IPO
In the brokerage's view, the market seems to be pricing in increased competition from LIC ahead of its potential -listing. HDFC Life, SBI Life, Max Financial and ICICI Prudential Life currently trade at price-to-enterprise value (P/EV) ratios of 2-3.3 times FY23E.
UBS has a 'neutral' rating on HDFC Life, and a 'buy' call each on ICICI Prudential Life, Max Financial and SBI Life. Here's how it views LIC's listed peers:
Stock | Rating | Target price (in rupees) | P/EV forward | |
FY22E | FY23E | |||
HDFC Life | Neutral | 750 | 3.8 | 3.3 |
ICICI Prudential Life | Buy | 780 | 2.3 | 2 |
Max Financial | Buy | 1265 | 2.6 | 2.2 |
SBI Life | Buy | 1094 | 2.6 | 2.2 |
Source: UBS
LIC depends heavily on the agency channel, unlike private insurers, though the productivity of the state-run company's agents is significantly higher, UBS pointed out.
Here are some highlights of what UBS said:
LIC to be third largest stock in India by market cap
LIC IPO size equivalent to 25% of total capital raise in 2021
LIC largest institutional investors in the Indian market with $520 billion in total AUM
LIC is an important entity for government
LIC owns over 19 percent of all government bonds, bigger than RBI
LIC IPO FAQs | Which policyholders can apply for shares?
UBS said risks to its long-term estimates include an economic slowdown, a weakening currency, global economic events and government policy changes.
Catch latest stock market updates with CNBCTV18.com's blog
(Edited by : Akanksha Upadhyay)
First Published:Feb 16, 2022 12:33 PM IST