All but one ₹4,000 crore plus initial public offerings (IPOs) from Central Public Sector Enterprises (CPSEs), hitting the market during last 12 years, have disappointed the investors with the current market price being below the issue price. Insurance behemoth Life Insurance Corporation (LIC) is the latest one to be added to that list.

Between 2010 and 2022, a total of 23 CPSE IPOs hit the market. Out of these, LIC is the largest one followed by Coal India, General Insurance Corporation, New India Assurance, Indian Railway Finance Corporation and Hindustan Aeronautics Limited (HAL). Barring HAL, shares of all the other five have faced beatings. According to data collected by PRIME Database, issue size of LIC, Coal India and GIC was ₹10,000 crore or more, while the remaining three (NIA, IRFC and HAL) had issue size between ₹4,000 crore and ₹10,000 crore. Rest of the 17 IPOs that hit the market had issue size between ₹120 crore and ₹1,500 crore.

Data from BSE show, among ₹4,000 crore plus IPOs, only HAL has given better returns to investors, while LIC shares have shed more than a fourth of its issue price of ₹949 and gone even below the discounted price of ₹904 (retail investor) and ₹889 (policy holder). Though the government has termed the fall a ‘temporary blip’, it claims an upside potential in LIC scrip. “LIC would update its embedded value by June-end which would give EV as on March 31, 2022,” a government official said.

Experts’ take

Ravi Singh, President & Head of Research, Share India Securities, said during the last fiscal, private life insurers have grown their individual single premium business by 27 per cent to ₹14,709 crore, group non-single premium business by 40 per cent to ₹356.43 crore and individual non-single premium segment by 24 per cent to ₹44,705 crore in which LIC’s has fallen substantially. “Compared to private peers, LIC’s network is larger and older, but the segment-wise business losses clearly show that LIC struggles to acquire new customers and retain the existing ones,” he said.

Kamlesh Shah, President of ANMI (Association of National Exchanges Members of India), felt the timing of the issue was not correct considering the uncertainties brought in by international factors including the Ukraine war, inflation, crude prices etc., which has impacted the overseas performance of the market.

Concurring with Singh, he said LIC is dependent on agent-led distribution channel whereas “its private peers are benefitting from banking channels for product distribution and digital channels for retail sales.”

Private companies shine

While many PSUs have disappointed investors, peer companies in the private sector across segments have done very well. Explaining reasons, Singh said as unlike private companies, government cannot run firms only for profits. Most of the PSEs are still struggling to work effectively and transform itself adequately to adapt to the rapid digitisation. Hence, “PSE stocks will always be undervalued as compared to the private peers,” he said.

According to Shah, apart from business objectives, PSUs carry the baggage of ‘running in public interest’. Private sector units are presumed to be efficient compared to their counterparts in PSUs. Even the government has admitted several times that its role is to govern and not to run business. In short, there are a number of criteria on the basis of which PSU units will be considered to have lower valuations,” he said.