Shares of insurance company: LIC reached its fresh all-time low in early trading today. Shares weakened to Rs 650 today, although some recovery is being seen later. On Friday, the stock closed at a fresh low of Rs 655. LIC’s market cap has cleared nearly 30 per cent since its listing on May 17. However, the brokerage house JP Morgan is bullish on the stock. Giving an overweight rating on the stock, the brokerage has given a target of Rs 840. The brokerage says that there is a pickup in the business of the company and further growth is expected.
Today, the share of LIC has weakened and has reached a price of Rs 650. The IPO price was Rs 949. In this sense, the stock is currently trading at a discount of 32 per cent as compared to the IPO price. At the time of IPO, the valuation of the company was estimated at 6 lakh crores. Whereas now its market cap has come down to close to 4.15 lakh crores. That is, till now the investors of LIC have got a setback of 1.85 lakh crores. The market cap has cleared more than 30 per cent.
That said, even after the current decline in prices, global brokerage firm JP Morgan is upbeat on the insurance behemoth.
JP Morgan initiated coverage on LIC with an ‘overweight’ rating and a target price of Rs 840, suggesting a potential upside of 29 per cent from its latest lows. However, its target price is about 12 per cent lower than its issue price. The markets are mispricing the stock after the steep fall since listing, said the brokerage. “The stock is 32 per cent below its IPO price. The majority of the correction in the counter is overdone.”
JP Morgan finds the value compelling even after adjusting the Enterprise Value lower for the market declines. They see building investor confidence through consistency and disclosure- which they believe could be the rerating driver for LIC. The key risk is consistent stake reduction by the Government, in J P Morgan’s opinion. LIC has picked up growth recently and JP Morgan forecasts 6 per cent FY22-FY24 growth.
LIC had a 44 per cent market share in FY22 but has lost market share to peers over the last five years, J P Morgan highlights in its report. LIC’s retail premium is growing faster than the industry and is above the 2019 level. LIC is focused on addressing portfolio white spaces. It is making a distribution push as well in agency and other channels, opening upside risk- JP Morgan said in its report.
What Do Analysts Say?
VK Vijayakumar, chief investment strategist at Geojit Financial Services, said that it is only a month since LIC was listed, and therefore, it is too early to conclude that LIC has become a wealth destroyer. Even great wealth-creating companies like RIL, HDFC, Kotak Bank, Infosys, and HUL have gone through long periods of poor stock price performance.
“Presently, the financial sector is underperforming, mainly due to FPI selling. This scenario will change lifting the sentiments in the financial sector. LIC also is likely to perform better when the market sentiments improve. Poor Q4 FY 22 results also impacted LIC’s performance. If the coming results indicate improvement, there can be renewed buying in the stock, lifting its share price. LIC’s issue price at 1.1 times embedded value was fair. From that perspective, the present market price is attractive. Long-term investors who got allotment in the IPO may buy some more now at the current rate to bring down their average cost,” Vijayakumar explained.
Swastika Investmart Ltd. Head of Research, Santosh Meena also says that one can invest in LIC shares at the current price. Long-term investors need not worry. Insurance is a long-term business, so the benefits of wealth development and compounding will accrue over time. The fundamentals of LIC are strong, and the potential for huge growth in the insurance sector in India is very high.
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