One year of IPO – Will LIC revive investors’ confidence?

Exactly a year ago – between May 4th and May 9th, the country’s largest insurance company, Life Insurance Corporation of India, launched its mega-project IPO of Rs 21,000 crore. It saw a reasonably good response from all classes of investors. The bank portion was subscribed 2.83 times, the non-institutional investors portion was subscribed 2.91 times and the retail investor and employee stakes, which enjoyed a concession of Rs 45 over the IPO price of Rs 949, were subscribed 1.99 times and 4.40 times respectively. The number of policy subscribers and LIC customers exceeded 6.12 times.

However, those who acquired LIC shares from the difficult allotment process must regret the decision to go public.

The stock, from day one, has been in steady decline. Against an IPO price of Rs 949, it is currently priced around Rs 560 on the Bahrain Stock Exchange. Its highest price since listing is $920 – below the IPO price, and that too on the day of listing (May 17). The stock reached as low as $530.20 recently.

front run

The share price has been under constant pressure for various reasons in the company’s equity investments. Earlier, her investment in shares of Adani Group raised a lot of questions. The last episode to hit her picture was a front running condition. SEBI, in a temporary order, found that Yogesh Garg, a stock trader, was running LIC deals with the help of his mother, his mother-in-law, HUF in the name of his deceased father and HUF in the name of his mother.

As the stock continues to slide, around 6.87 lakh Retail shareholders have already exited of the company since its incorporation. This is a bad sign, as LIC will struggle to convince investors to participate in its future stake reductions.

Next options

So, what are all of the options for LIC to revive the share price and investor interest?

First, the insurance major can be considered a huge return. For the year ending March 2022, it declared a dividend of 15 per cent (or Rs 1.5 per share), which translates to a paltry dividend yield of just 0.27 per cent; For FY22, it recorded a net profit of around Rs. 4,040 crore.

However, during the nine months period ended December 2022, LIC posted PAT of about ₹22,970 crores, mainly due to transfer of ₹19,941.60 crores from non-nominal policyholders to shareholder account. With good earnings, the company can consider giving health subsidies to investors.

Another option might be to buy back the shares. LIC could launch the buyback, given the strong erosion in the share price, as it believes the market has cut its shares too sharply. A buyback can achieve two dual purposes – to restore the share price and reduce the number of outstanding shares on the market. The promoter, the Government of India, can stay out of the buy-back. \

Bonus issuance may also be considered by the insurance professional to the non-promoters category, to gain their trust.

Performance is the key

Although the above corporate actions may give temporary relief to the share price, financial performance is the permanent solution.

Emkay Global Financial said, “LIC numbers in 9m-FY23 do not change our view on the underlying challenges of slowing growth, fixed cost leading to gradual loss of market share in the retail segment and substandard profitability reflecting weak embedded value (shareholder value) )”. On a note recently.

Unless you improve in all business metrics — value inline, value of new business, annual premium equivalent and other key ratios — the share price will only weaken.

One hopes that the tide will soon turn with the appointment of Siddhartha Mohanty as the new president.