Emkay Global has now started discussing the stock with a ‘flesh’ rating and a target price of Rs 875, which means that if this proves to be true, the stock could not return a profit for its IPO investors for some time. At current prices, the possible compensation is about 9 percent. It also called the strain “the elephant that can not dance”.
The matter was settled with great fanfare, after much anticipation and drastic cuts. Up to 17 experts had rated subscribers and had high expectations. This was justified, to a certain extent, as it is the largest life insurance company in India.
Although its size, Emkay believes, is a major obstacle to the stock’s performance.
“Size and heritage are key barriers to making radical changes to the product and distribution mix. The biggest strength of LIC has been the large 13 lakh agency network, with significantly higher productivity compared to peers in the private sector. However, this also entails costs in terms of a large branch network and higher operating costs, which leads to a traditionally heavier product mix, “the broker said in its report.
The dominant size of the LIC in the industry – with over 60 percent market share – is also a problem, says Emkay, as it involves operational challenges. LIC’s overwhelming share of single-premium fund management operations artificially increases its market share and reduces some cost ratios, it said.
“LIC’s remuneration and operating ratios are on the higher end than larger, more profitable private parties, despite their enormous scope. Adjusted for the one-time payment system and LIC’s almost ULIP-free product mix, the persistence and yield ratios are not impressive, “wrote Avinash Singh and Mahek Shah of Emkay Global in their Thursday report.
They say that their neutral opinion is based on three factors:
- Low EV compared to EV, which limits RoEV potential to near-premium relaxation rate
- Lower APE growth and margin prospects compared to peers in the private sector, as higher commission costs and LIC operating costs (excluding mgmt biz group funds) limit the scope for product and channel diversity.
- Built-in fluctuations in EV, where 35 percent of assets that are not on par are in equity and no record of achievements in the movement of electric cars according to the fund’s new division.
LIC had also disappointed investors when it posted fourth-quarter earnings earlier this week. The Behemoth said the group’s profit for the quarter ended March fell 17.41 percent, even as net premium income rose 17.88 percent. It also announced a symbolic 1.5 Rs dividend.
Adding that the LIC’s value-attracting appeal is more visual than fundamental, said Emkay, the LIC’s intrinsic value is almost entirely in the current EV; as such, the profitability of electric cars will mainly come from the discount on the discount and not from the VNB supplement.
“Thus, RoEV will probably be closer to the relaxation rate and push the fair value into a 1x EV range. An important point regarding the EV LIC is that 75 percent of its H1FY22 EV has come from a change in the residual share, the division of pairs and the imbalance of funds, and that almost all fair value gains have been returned to non-consolidated funds. .
Furthermore, a large part of this profit is in the form of MTM profit shares, “he said.
There is not much discussion about brokers on the stock yet. Macquarie, who started the discussion even before the case was registered, had set a goal of Rs 1,000 on LIC.
(Disclaimer: Recommendations, suggestions, opinions and opinions given by experts are their own. This does not represent the views of the Economic Times.)
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