JPMorgan overweight on LIC, says D-Street mispricing stock

Initiating coverage on the stock with an overweight rating and a target price of ₹840, JPMorgan said the valuations are attractive. Shares of

ended up 1% at ₹661.25 on Monday after hitting a new post-listing low of ₹650.

JPMorgan was also one of the book running lead managers of LIC’s IPO.

“We believe the market views LIC as an equity market proxy and recent weakness in markets is overdone. We don’t foresee LIC trading at private sector valuations of 2-3 times P/EV (price to embedded value), but our March-23 price target of ₹840 is based on 1 times FY23 P/EV, which we think is justified on a mostly par back book, excess assets on the B/S (balance sheet), and a 185% solvency ratio,” said JPMorgan.

JPMorgan said LIC is trading at 0.75 times FY23 price to embedded value on FY23 earnings basis after a post-IPO correction that saw erosion of ₹1.9-lakh-crore market cap.

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About a month ago, LIC made its market debut at a discount of over 8% to its issue price of ₹949 and listed at ₹872 per share on the BSE. The stock touched a high of Rs 920 post listing but has never been able to cross the issue price level. Even JPMorgan’s target price is about 12% lower than the IPO price.

LIC’s ₹21,000-crore IPO which ran from May 4 to May 9 was the biggest ever IPO of an Indian company and ended with a subscription of 2.95 times. Analysts believe the listing of LIC coincided with a falling market momentum, triggered by geopolitical tensions, rising interest rates and crude oil prices, which played a huge part in the sharp fall after the listing.

JPMorgan said LIC’s new business value is only 1% of its policies in force. “With 99% of value from old policies, we see the 0.75 times P/EV as unduly harsh, even assuming no growth. In reality, LIC has picked up growth recently and we forecast 6% FY22-24 estimated growth,” said JPMorgan.