Life Insurance Corporation of India (LIC) will open public problems to subscribe next week with most analysts to rank ‘subscribe’ to this problem, thanks to a cheaper assessment compared to registered insurance companies. Anand Rathi, Broking Religare, Marwadi Financial Services and Samco Securities have ranked ‘subscribed’.
However, some analysts also warned investors of investing traps in the largest living insurance company in the country.
LIC consistently lost market share for private partners. At present, LIC has 64 percent market share in terms of total life insurance premiums. Growing at a 9 percent joint annual growth rate (CAGR) during FY16-21, while private insurance companies grew at 18 percent.
LIC has acknowledged that sometimes his actions on the government’s orders can conflict with the interests of shareholders. Previously, LIC had saved the initial public offering (IPO) from Bharat Dynamics Ltd. and Hindustan Aeronautics Ltd. in 2018. The company also bought an IDBI bank, which reported continuous losses due to poor loan surge. LIC has absorbed RS 21,600 crore for 51 percent of shares in IDBI Bank. In 2019, another 4,743 Crore RS was infused at the bank.
Another concern is that LIC does not have a strong digital presence and 90 percent of its policies are sold by agents. The company’s paper design shows that only 36 percent of individual updates premiums are collected digitally, compared to more than 90 percent for private players. Analysts say that if this trend continues, the total cost will increase for LIC, going forward.
Investing in a digital collection system is one -time cost, while physical investment in branches and resources to collect actual cash will be more expensive. Analysts are worried that the presence of digital that continues to be weak can maintain high costs because agents usually receive high commissions.
But another concern is that the LIC value of the new business margin value (VNB) in September 2021 was established at 9.3 percent, while for FY21 full, it was 9.9 percent. However, other registered players such as SBI Life, HDFC Life, Icici Prudential Life, Max Life and Bajaj Allianz Life reported the VNB Margin of 11-27 percent. VNB margin for all players increased substantially during 2016 to 2021. Among the players in this set, HDFC Life reported the highest VNB Margin 26.1 percent in FY21, followed by Max Life with 25.2 percent.
Lic also sits on Mark-to-Market (MTM) lost Rs 6,028 Crore. Lic said in the draft paper that from the debt paper worth Rs 11,265 Crore from the wrong price insurance policy, a paper worth RS 5,351 Crore is a non-work asset (NPA) that has been carried out at full costs with amortized costs, and if this transaction is displayed in Balance Sheet, Lic must show the loss of RS 6,028 Crore. Analysts are now watching how Lic will adjust this MTM loss in the balance sheet.
Aditya Kondawar, the head of investment at the JST Investments said that even though his assessment was 1.1x the-agricultural value, he would wait and watch at this IPO. Lic’s Peers HDFC Life and SBI Life are traded in P/EV each 4.0x and 3.0x.
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