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LIC m-cap drops over 87,500 cr against IPO issue price. Have shares become cheaper

LIC's market cap declined to the seventh rank from the previous sixth position in the top ten most valued companies on exchanges.Premium
LIC's market cap declined to the seventh rank from the previous sixth position in the top ten most valued companies on exchanges.

  • When LIC was listed on May 17, it held the fifth rank in terms of market capitalisation and since then has lost its spot to Hindustan Unilever and ICICI Bank.
  • At the IPO's upper price band of 949 apiece, LIC's market cap stood at 6,00,242 crore. 

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India's largest insurer, LIC has been struggling since the time of its listing on stock exchanges. The shares still trade lower from their IPO issue price. And the FY22 financial performance further added to its woes. So far this week, the behemoth's market cap has declined drastically and on Wednesday LIC tumbled to become the seventh most valued company with ICICI Bank overtaking the sixth spot. LIC currently is near its all-time low.

On BSE, LIC shares closed in red at 810.55 apiece, however, flat compared to the previous closing. Its market cap stands at 5,12,672.69 crore.

LIC floated between an intraday high and low of 817 apiece and 808.55 apiece respectively today. The shares neared their 52-week low of 801.55 apiece.

This led LIC's market cap to decline to the seventh rank from the previous sixth position in the top ten most valued companies on exchanges. At Dalal Street, ICICI Bank surpassed LIC and bagged the sixth rank with a market cap of 5,23,353.87 crore.

When LIC was listed on May 17, it held the fifth rank in terms of market capitalisation and since then has lost its spot to Hindustan Unilever and ICICI Bank.

On Tuesday, LIC said it booked a profit of 42,000 crore from its investment in the stock market for the financial year FY22 - higher compared to a profit of 36,000 crore in FY21.

While interacting with the media, Raj Kumar, managing director, LIC said that LIC is the largest asset manager in India, with assets of close to 42 trillion under management, besides being the largest domestic investor in the local stock market. It invests approximately 25% of its assets in Indian equities.

Kumar also pointed out that LIC's fourth quarter of FY22 was not compared with the Q4 of last year as the insurer started reporting quarterly profits from the September quarter of 2021.

LIC's management further said that they are conducting an exercise to calculate the Indian embedded valuation, value of a new business, and the margin of new business, which is expected to be completed by 30 June. Before the IPO, LIC's embedded valuation stood at 5.39 trillion.

"We are implementing a new IT solution for calculation of IEV and we need to cross-check all the data to be absolutely sure the new system is perfect, although the two previous data (September and December) were perfectly matching our liabilities," Kumar said.

LIC registered a growth of 6.1% in the Net Premium Income at 4,27,419 crore for FY22 as compared to 4,02,844 crore in the previous fiscal. LIC's net profit for the full year stood at 4,043.12 crore increasing by 39.39% as against 2,900.57 crore in FY21.

Further, in FY22, the company's Yield on Investments on policyholders' funds excluding unrealized gains was at 8.55 % as against 8.69% in FY21. The insurer's net NPAs in the policyholders' fund declined to 0.04% in FY22 as compared to 0.05% in the previous fiscal. Also, the solvency ratio for the year ended March 31, 2022, was 1.85 against 1.76 for the period ended March 31, 2021.

At the IPO's upper price band of 949 apiece, LIC's market cap stood at 6,00,242 crore. However, since its debut, LIC shares and market cap have corrected sharply.

Against its IPO upper price band, LIC shares have nosedived by nearly 15% as of today. While its market cap has dropped by over 87,569 crore against the IPO issue price.

Have LIC shares become cheaper? For how long the shares will continue to be under pressure?

Manish Jeloka, Co-head Products & Solutions, Sanctum Wealth said, "The drop in Q4 net profit, lower 13th-month persistency, and lower than expected dividend payout have spooked LIC investors."

Jeloka added, "In the run-up to the IPO and after the results, the management has reiterated its focus on increasing the share of the non-par business, improve VNB margins, arrest market share decline and focus on reducing expense ratios."

Further, Jeloka said, "Given that LIC is such a behemoth, these changes will be at best gradual and so will be the multiple rerating. Inexpensive valuations provide a lot of comfort to LIC investors."

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