“LIC adds one more option for fund managers to own and my personal preference is still the private life insurers. At some point of time, depending on price and depending on how performs, that view can change but for that, LIC will need to improve,” says Madhukar Ladha, VP Research, Elara Capital.
At what point in time does LIC become a value stock? Will it be at Rs 900, at Rs 875 or at Rs 800? At what point in time would you say this becomes so attractive that it is hard for me to avoid?
The first thing is that the listing is not that bad considering how the markets have turned in May. It is good to see retailers and policyholders are at least in the money on this one as of now. A large part of LIC’s embedded value is marked to market equity gains. So every 10% move in equity markets impacts the EV by about 7 odd percent.
At what point in time does LIC become a value stock? Will it be at Rs 900, at Rs 875 or at Rs 800? At what point in time would you say this becomes so attractive that it is hard for me to avoid?
The first thing is that the listing is not that bad considering how the markets have turned in May. It is good to see retailers and policyholders are at least in the money on this one as of now. A large part of LIC’s embedded value is marked to market equity gains. So every 10% move in equity markets impacts the EV by about 7 odd percent.
A lot of LIC’s movement itself or stock price itself will also be determined by how equity markets behave. I have maintained that LIC was fairly valued at Rs 950. Going forward, I do not want to put a number to when it becomes an absolute buy, but a lot of it depends on how the management communicates, what sort of additional information disclosures they are able to give and how they are able to grow their sales and margin numbers.
A lot has been promised to investors. We will need to see some execution of their and that determines the future sort of stock trajectory.
When you say disclosures and the way forward, what is that one or two numbers which you would like to analyse which would give you the way directionally things are moving? What LIC was, what LIC is and what LIC will be – there are three different things here.
If I were to put the top sort of two-three things on investors’ minds, it would be sales growth and a mix of that sales and improvement in margins. Along with that, I would say how open the management is to communicate with investors, to talk to investors and to explain their business and give guidance. These things would be very important.
Could LIC’s listing be a turn where fund managers and investors and HNI investors may sell and reduce their holding in existing insurance companies that are priced to perfection and come back to LIC? Could this also lead to underperformance in other insurance stocks?
I would not say so. I do not think that a lot of the other listed life insurance companies are priced to perfection. In fact, we have seen a sharp de-rating in some of those stocks and those are really strong businesses which are growing, gaining market share, improving margins and we have seen quarter over quarter improvement in some of those businesses.
LIC adds one more option for fund managers to own and my personal preference is still the private life insurers. At some point of time, depending on price and depending on how LIC performs, that view can change but for that, LIC will need to improve those three metrics that we spoke about earlier, considerably for that to happen. My preference is for private life insurers.
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