Will LIC come up with an FPO as government still holds 96.5% of the company?

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Will LIC come up with an FPO as government still holds 96.5% of the company?
Credit: © Reuters.

Shares of the Life Insurance Corporation (NS: LIFI ) of India have lost more than one-third of their value since their listing on the bourses last year. The government still owns a 96.5 per cent stake in the company and wants to convince global investors that the insurance behemoth is worth much more than the current $ 48 billion, amid market murmurs that LIC might sell a stake or issue fresh shares.

Reports suggest that officials from the company as well as from the government have met investors in the US to highlight the strengths of the company. LIC still accounts for over 60 per cent of all the new business premiums earned from life insurance policies in the country.

LIC’s top management including senior government officials have had meetings with investors starting from June 2023. Roadshows have just concluded in the US and the ones in Singapore, Hong Kong and the UK are still due. However, the government said that these are “non-deal”.

Theoretically, whenever new shares hit the market, the value of existing shares falls due to an increased supply. DIPAM Secretary Tuhin Kanta Pandey, told CNBC TV18 that the government is “in no hurry to bring a follow-on public offer (FPO) for LIC”.

He said that there should be a broader understanding of LIC’s strengths. The state-run insurer’s management is dealing with a wider set of investors and is very clear about its earnings. He added that the next few quarters are very important for LIC.

In a corporate presentation to its investors, it listed three initiatives like new product launches, focus on increasing the share of non-participating policies, and expanding other channels of distribution like bancassurance and through digital platforms.

Factors holding back LIC’s share price

Private players like HDFC Life and ICICI Prudential are backed by India’s largest private sector banks and have an aggressive sales force. On the other hand, LIC relies on a relatively docile workforce of state-owned banks.

The private banks hold a stake in their sister companies, which serves as an incentive for them to push products on behalf of their sister concerns. The only way by which LIC can compete aggressively is by incentivising its sales force and by increasing the rate of commission which will eventually eat into its profits.

About one-third of individual life insurance policies sold in India go through the banks. LIC’s share of sales via banks as a distribution channel stands merely at 3 per cent. A lion’s share of its new business premium goes through its agents, which is at 1.3 million.

LIC is a large-cap company with a market capitalization of ₹ 3,95,281 crores. It has a low dividend yield of 0.48 per cent. The company’s shares were trading at a price-to-earnings ratio (P/E) of 10.98, which is lower than the industry average of 17.38, indicating that the stock might be undervalued as compared to its peers.

Written By Simran Bafna

The post Will LIC come up with an FPO as government still holds 96.5% of the company? appeared first on Trade Brains.

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