Exactly a year ago — between May 4 and May 9, the country’s largest insurer, Life Insurance Corporation of India, launched its mega ₹21,000-crore initial public offering. It saw a reasonably good response from all categories of investors. The QIB portion was subscribed 2.83 times, non-institutional investors 2.91 times, quotas of retail investors and employees, who enjoyed a concession of ₹45 on the IPO price of ₹949, were subscribed 1.99 times and 4.40 times respectively. Policyholders, the customers of LIC, over-subscribed by 6.12 times.

However, those who received LIC shares from the hard-fought allotment process must be regretting the decision to apply in the IPO.

The stock, from Day 1, has been witnessing a steady decline. As against the IPO price of ₹949, it is currently quoting around ₹560 on the BSE. Its highest price since listing is ₹920 — below the IPO price, that too on listing day (May 17). The stock hit a low of ₹530.20 recently.

Front-running

The share price came under constant pressure for various reasons in the Corporation’s equity investments. Earlier, its investment in Adani Group stocks raised a lot of questions. The recent episode that hit its image was a front-running case. SEBI, in an interim order, found that Yogesh Garg, equity dealer, was frontrunning the trades of LIC with the help of his mother, mother-in-law, a HUF in the name of his dead father and a HUF in the name of his mother.

As the stock continues to slide, about 6.87 lakh retail shareholders have already exited from the company since its listing. This is a bad sign, as LIC will struggle to convince investors to participate in its future stake dilutions.

Options ahead

So, what are all the options for LIC to revive the stock price and investors’ interest?

One, the insurance major can consider a hefty dividend. For the year ended March 2022, it had announced a dividend of 15 per cent (or ₹1.5 a share), translating to a paltry dividend yield of just 0.27 per cent; for FY22, it posted a net profit of about ₹4,040 crore.

However, during the nine-month period ended December 2022, LIC posted a PAT of about ₹22,970 crore, mainly due to transfer of ₹19,941.60 crore from non-par policyholders to shareholders’ account. With healthy profits, the company can consider giving a healthy dole-out to investors.

Another option could be a stock buyback. LIC can launch buyback, given the strong erosion in the share price, as it believes the market has discounted its shares too steeply. The buyback can achieve twin purposes — recovery in share price and to reduce the number of outstanding shares in the market. The promoter, Government of India, can stay out of the buyback.\

The insurance major could consider bonus issue as well to non-promoter category, to win their confidence.

Performance is key

Though the above corporate actions may give temporary relief to the share price, a permanent solution would be financial performance.

“LIC’s 9M-FY23 numbers do not change our opinion on the fundamental challenges of slower growth and sticky cost leading to gradual market share loss in the retail segment and subpar profitability reflecting in poor embedded value (shareholder value) compounding,” Emkay Global Financial said in a note recently.

Unless it improves in all business metrics — embedded value, value of new business, annual premium equivalent and other key ratios — the share price will only languish.

One hopes the tide turns soon with the appointment of Siddhartha Mohanty as the new chairman.

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