Markets mispricing LIC stock: JP Morgan

BL Chennai Bureau | | Updated on: Jun 21, 2022

Sees current value is compelling even adjusting EV lower for market declines

Global financial advisory firm JP Morgan has initiated coverage on Life Insurance Corporation of India with Overweight rating and a price target of ₹840.

"LIC, the largest life insurer in India, is down 31 per cent since IPO (NIFTY -6 per cent) and we think markets are mispricing the stock," JP Morgan said.

Shares of LIC on Tuesday closed at ₹665.30, up 0.61 per cent.

Embedded value

"Our thesis centers on LIC’s 0.75x Price to Embedded Value — a measure of the market value of an insurer’s current and future policies. LIC’s new business value is only 1 per cent of its policies in force. Therefore, with 99 per cent of value from old policies, we see the 0.75x P/EV as unduly harsh, even assuming no growth," the global major said.

In reality, LIC has picked up growth recently and it forecasts 6 per cent FY22-24 growth. “We find the value compelling even adjusting EV lower for market declines, and taking on an additional 15 per cent discount to fair value,” it said, adding “We see building investor confidence through consistency and disclosure as the rerating driver”.

The next EV release is due on June 30.

According to JP Morgan, key risks are consistent stake reduction by the Government, National service by way of products or asset allocation, investment write-offs and premium decline.

Published on June 21, 2022
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