LIC IPO valuation: Overvalued or reasonably valued? Possibility of stock listing at discount low | INTERVIEW

The much-awaited Life Insurance Corporation of India (LIC) IPO (initial public offering) is set to open next week. Even as LIC issue size is trimmed down to 3.5% of equity, from 5% planned earlier; it will still be the largest ever to hit Dalal Street. The insurance company is valued at just over Rs 6 lakh crore. Sandip Sabharwal, investment advisor, in an interview with Surbhi Jain of Financial Express Online, said that LIC IPO looks reasonably valued in the context of its size and dominance of the insurance market. Sabharwal added that this insurance behemoth will keep on losing market share, going forward, and may not be a preferred company among the young, which could impact longer term valuations. Here are edited excerpts from the interview.

1. LIC IPO at Rs 6 lakh crore valuation, is it overvalued, undervalued or reasonably valued?

LIC is reasonably valued in the context of its size and dominance of the insurance market. The only issue facing the company post listing will be growth as it has not been growing much with the entire growth in the insurance industry being dominated by the private sector players. LIC will keep on losing market share going forward, and it is not a preferred company among the young and that could impact longer term valuations.

2. Do you think this is the right time to bring out the LIC IPO?

The size of the IPO now is nearly one third of what was originally talked off. As such, subscription should not be an issue. The only challenge for people who subscribe now is that there will most certainly be a follow-on offering sometime over the next one year which could be of a bigger size and impact stock performance.

3. LIC IPO commands a valuation of 202 times its earnings against average PE of the life insurance industry at 80. You think this high valuation should concern retail investors?

PE is not the right barometer to evaluate life insurance companies, but the other valuation parameters are reasonably valued.

4. Is LIC IPO worth buying amid current market scenario or should investors wait for listing day?

I think it’s fine to subscribe. The possibility of listing at a discount is low at this stage.

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