LIC valuation may be among cheapest for global peers

At these price levels, the government has valued the IPO at 1.11 times its embedded value compared to 0.21 of China Insurance or 0.54 of Ping An Insurance.

Domestic insurance firms such as HDFC Life Insurance and SBI Life Insurance are currently trading at 4.05 times and 3.10 times their embedded values while ICICI Prudential Life is at 2.5 times.

According to Sunil Tirumalai, strategist at UBS India, the embedded value (EV) of LIC calculated as of September 30, 2021, has moved up sharply to ₹5.4 lakh crore on the back of a decrease in the future profit distribution in line with private peers. On a like-to-like basis, EV would have been ₹1.25 lakh crore without a change in distribution profits.

Agencies

Brokerage Angel One said the IPO size of LIC could be ₹21,000 crore, valuing the insurer at ₹6,00,000 crore.

“Earlier it was expected that the valuations will be around ₹13,00,000 crore but now it will be around ₹6,00,000 crore and embedded values are around ₹5,40,000 crore,” said Yash Gupta, equity research analyst at Angel One. “The ₹6,00,000-crore LIC valuation looks lucrative.”

Brokers said activity in the unofficial grey market is picking up ahead of the IPO. LIC is currently trading at a premium of ₹38 per share over its likely issue price in the grey market.

At the speculated IPO price, LIC would be the fifth-largest life insurer in terms of market capitalisation. In Fiscal 2021, LIC had a Return on Equity (RoE) of 82% – the highest amongst its global peers. The RoEs of rivals such as Ping An Insurance, Aviva PLC, and China Life were between 11% and 20%.