Brokerage and research firm Emkay has launched coverage on LIC shares with a neutral outlook and the 12-month target price of the stock is lower than its initial public offering (IPO) issue price.
The brokerage house said its neutral outlook is underpinned by low VNB relative to EV, which limits potential ROEV to premium-unwind rates, lower APE growth and margin prospects versus private sector peers, as seen in the report. LICHigh commission costs and OPEX limit the scope of product and channel diversification.
Another factor is the implied volatility in EVs as about 35% of non-par assets are in equities, and there is no track record of EV movement under the new fund bifurcation structure, the note said.
“We use a 0.9x Jun’23 P/EV multiplier to arrive at our TP, which reflects our lack of track record of EV growth and a 10% discount on EV for high volatility in EVs. Whereas we LIC Appreciating our market-leading position and comfortable valuations, we prefer private sector peers who have better growth, profitability and hence higher ROEV prospects,” said Emkay.
LIC SharesThe one who made his stock market debut on May 17th, 2022 is trading below IPO The issue price hit its lowest level since listing on Friday.
“LIC’s major stake in the single-premium group fund management business artificially inflates its market share and lowers some of its cost ratio. Its commission and OPEX ratio is on the higher side compared to the cost-efficient large private players, despite being massive. Adjusted for group single-premium business and LIC’s almost ULIP low product mix, its persistence and dedication ratios are not impressive,” the brokerage said.
The state-run insurance behemoth reported lower profits for the fourth quarter ended March 2022. In its maiden earnings release post share listing, LIC reports 17% drop in consolidated net profit 2,409 crore for Q4 from 2,917 crore in the same quarter a year ago. The total income of the insurer increased 2,12,230 crore, from 1,90,098 crore in the same period of the previous financial year.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.