By Yoosef KP

The mega share sale by Life Insurance Corporation (LIC) is likely to weigh on the performance of listed private insurance players. Insurance stocks, which have been under-performing the market so far this year, are unlikely to turn the corner as LIC’s IPO could result in supply of close to 60% free float market cap of existing large players. The government is looking to dilute 5% stake in the insurance behemoth at a valuation of Rs 10-15 lakh crore. The issue will fetch anywhere between Rs 50,000 crore and Rs 75,000 crore to the government.

Ihe issue seems to be relatively priced based on the price-to-embedded value (P/EV) – a measure for valuing insurance company. LIC’s P/EV is pegged at up to 2.8x, considering a post-listing market capitalisation of Rs 15 lakh crore. That compares with 4.1x for HDFC Life and 2.9x for SBI Life insurance.

The private sector, as a whole, commands a P/EV of 3.1x. “We believe private sector life insurance players could under-perform in the near term ahead of the LIC IPO. At the upper end of valuation, the LIC issue could result in supply of close to 60% of free float market cap of the three large listed private life insurance companies,” Macquarie Research wrote in a note dated February 17.

While shares of ICICI Prudential and HDFC Life insurance have plunged 26.8% and 21.9%, respectively, from their September highs, the stock of SBI Life Insurance has come off 10.7% from its January 2022 peak. Additionally, the three companies have lost anywhere between 4% and 9% since January, against a marginal 0.5% fall in the Nifty-50 index during the period.
Market participants are of the view that investors are trimming their positions from the current players, so that adequate funds can be deployed in the market leader which is getting listed late.

LIC, with more than 60 years of operations, has grown to the fifth-largest life insurer globally in terms of gross written premium. It enjoys 64.1% market share in premiums and 66.2% market share in new business premium. Also, the insurer’s market share in individual policies issued stood at 74.6% as of March 2021.