JP Morgan calls LIC valuation 'unduly harsh', stock makes new 52-week low on Monday

20 Jun 2022 , 12:57 PM

JP Morgan India, one of the ten book-running lead managers for the record-breaking initial public offering of Life Insurance Corporation of India, believes the market has been unfair to the country’s largest life insurer.

On June 20, LIC’s stock dropped to a new 52-week low of Rs650 on the National Stock Exchange after the investment banker’s research wing commenced coverage with a “outperform” rating and a price objective of Rs840 per share.

Concerns about the life insurer’s growth, perceived volatility in its inherent value, and competition from private sector rivals have caused its stock to plummet more than 30% since it went public on May 17.

“LIC’s new business value is only 1% of its active policies. Therefore, even assuming no growth, we regard the 0.75 times P/EV (price-to-embedded value) as unnecessarily punitive, with 99% of value from existing policies,” JP Morgan India’s research wing wrote in a note.
Higher consistency in embedded value disclosure in the future, according to the brokerage business, could assist prompt a stock re-rating.

“In our opinion, LIC would have to demonstrate consistency in EV, which would indicate correctness on the assumptions applied,” JP Morgan stated. According to JP Morgan, investors are only willing to pay 0.75 times the stock’s estimated price-to-embedded value.

At 12:54 a.m., LIC’s stock recovered all of its losses and rose 0.34% to Rs 656.50 on the NSE, but it still lacked the zeal depicted by its former investment banker.