Angel Broking said the price to embedded value of 1.1 times at the upper end of the privce band is lower compared to other listed private life insurers which are trading at 2.5-4.3 times September 2021 embedded value. Valuations factor in most negatives such as concerns over market share loss in individual insurance business, said Angel. Expected improvements in product mix and greater transfer of surplus to shareholder account in the coming years are likely to drive profits from current low levels, said Angel Broking.
According to Geojitt, even though there are headwinds like declining market share, lower short-term persistency ratios and sub-par margins demand a discount to private players, the current valuation is attractive considering LIC’s strong market presence, improvement in profitability due to changes in surplus distribution norms and strong sector growth outlook.
At the IPO price band of ₹902-949, the offer is valued at 1.06-1.11 times its embedded value, which is lower than domestic and global industry’s average valuation, and looks attractive given its leading market share in new business premium, number of individual policies, and renewals among others, said Sharekhan. Further, LIC has the highest return on equity among global peers, said Sharekhan.
For Reliance Securities, the giant market share, large assets under management, strong brand, diverse portfolio of products, and valuation comfort are the biggest draws, which is why it has a subscribe recommendation on the issue. The IPO is valued at a price/embedded value of 1.1 times on the higher band, which is at a significant discount compared to other listed private life insurers, said Reliance Securities.
Nirmal Bang thinks one should subscribe to LIC’s IPO as the issue is priced at a significant discount to private sector valuations. The brokerage also sees opportunity in the sector as India life insurance new business premium is expected to grow at 14-16% on a compounded basis over the next decade.