6 days ago
LIC deserves a better valuation from markets, says MD Doraiswamy
Mumbai: The country's largest insurer Life Insurance Corp (LIC) of India deserves a better valuation from the market on the back of an improved customer service and the stronger product portfolio it is building, said R. Doraiswamy, the newly-appointed managing director and chief executive officer.
'If you ask for my personal opinion or our opinion as an organization, we strongly feel that we deserve a better valuation than what we are currently having in terms of EV (enterprise value) multiple," Doraiswamy told Mint in an interview.
Doraiswamy, who took charge as the head of the state-run company on 14 July, said LIC was valued 'lesser" than some of its private-sector peers, and expressed hope that the changes being undertaken to make it digital-savvy, improve customer service and strengthen the product portfolio will help improve its valuation.
'Surely this will address a perception change, and hopefully the market will have a better valuation in the days to come. That is what we are looking for," he said.
Read more: LIC gets a ULIP fillip in Q1, still it has lot of catching-up to do
LIC had undertaken a digital transformation initiative around two years ago in a project titled 'DIVE', from which Doraiswamy expects the insurer to soon start rolling out the outcomes. This initiative, combined with an agent transformation project called 'Jeevan Samarth', will be priority areas of the insurer in the near-term to improve the insurer's standing, he said.
These initiatives will be key to improving LIC's valuation ahead of the proposed government stake sale in the firm. The government plans to offload around 1.5% of its stake in LIC via a qualified institutional placement (QIP) in FY26, following which it may further bring its stake down, Mint reported. Currently, LIC's public float is around 3.5%, which will touch 5% after the proposed QIP. The life insurer has an exemption to bring the public float to 10% by 2027. The government currently owns a 96.5% stake in LIC.
'That (stake sale) may get a priority, but we do not know. It depends upon how the price moves, and what is the opportune time. I don't think they will be able to do it on a very urgent basis. They have to wait and think of what is the right price, and what is the method of doing it," Doraiswamy said.
LIC shares were listed in May 2022 at ₹872, a discount of over 8% to the issue price on the National Stock Exchange. As the country's largest initial public offering then, the issue garnered significant interest and was oversubscribed three times. While it touched a high of ₹918.95 on listing day, the stock traded below the IPO price for much of 2022 and 2023, falling as low was ₹530.05 in March 2023. It then reversed the trend to touch a lifetime high of ₹1,222 in August 2024. This year, the stock has largely been trading ina ₹880-920 range. On Monday, it closed 0.8% lower at ₹905.80 on the NSE.
In a post-Q1 earnings note, Motilal Oswal Securities said LIC continues to maintain its industry-leading position and is focused on achieving growth recovery through wider product offerings, higher ticket sizes, a shift in the product mix toward non-par, agency channel expansion, and a higher contribution from bancassurance and alternate channels. "A shift toward higher margin non-par products and improvement in persistency will boost VNB (value of new business) margin, going forward. The company is also working on enhancing its digital capabilities for cost optimization," the brokerage firm said, adding that it is keeping its FY26/FY27 estimates unchanged considering the in-line performance in Q1FY26. The brokerage reiterated a 'buy' on LIC's stock with a target price of ₹1,080, factoring in 0.7x EV for FY27.
Stake sale plans
Doraiswamy expects the government's other disinvestment plans, such as the proposed privatisation of IDBI Bank and a partial stake sale in five PSU banks, to get priority over the LIC stake sale.
'All these are being taken up on a parallel basis. But from whatever has been announced by the government, IDBI was being talked about in a big way for quite some time," he said, adding that there is a possibility of the IDBI stake sale 'moving faster" because it has reached a higher stage of completion.
LIC, which acquired a controlling 51% stake in IDBI Bank in 2019, has since brought its shareholding down to 49.24%. Following the stake sale by the government and LIC, the insurer's stake will fall to 19%—still higher than the regulatory limit of 15% that an insurance firm is permitted to hold in a single company.
Read more: Life insurance, pension funds share buys hit five-year high
'We are working closely with the government to see that (stake sale) gets completed. Even after that, we will have a substantial stake in IDBI Bank left. Thereafter, we will look at an opportune time and price discovery at which we will try to bring down the stake to within regulatory permissible limits. We don't have to exit it in full," he said.
Enhancing value
Efforts to improve the company's valuation include plans for its commercial real estate portfolio to boost the return on investments. LIC is one of the largest real estate owners in the country and while a bulk of it is self-occupied, a part of it is commercial investment.
'We are looking at enhancing the value realised out of those commercial investments. We would like to see that every square foot of our real estate gets properly utilised and optimum returns are received from that," Doraiswamy said, adding that the insurer might also look to exit some investments that are not deemed 'useful", including through a real estate investment trust (ReIT) structure.
Another area of strategic investment for the insurer is the proposed stake acquisition in a health insurance company. Earlier planned for FY25, the proposal has seen been delayed, which Doraiswamy said was due to the need for further due diligence and amid headwinds in the health insurance sector that are leading to slower growth.
'We were looking at a strategic investment in a standalone health insurance in order to get some learnings about the health insurance market. Like IDBI Bank, it was going to be a strategic stake," Doraiswamy said, adding that LIC had examined proposals from all five standalone health insurance companies but found that the investment needed a much 'deeper analysis and due diligence process" in terms of identifying the company, also depending on which insurer needed capital and the price of the acquisition.
'We have decided to not go ahead with the decision within the timeframe. We are still keeping those options open because those companies are still looking at expansion," Doraiswamy said, adding that while the investment did not go ahead at the speed envisaged earlier, the insurer continues to examine multiple options. It will only look to acquire a strategic or minority stake of around 15-30%, depending on the capital required by the company, he added.
Rising assets
Asked about LIC's assets under management nearing the $1-trillion mark, Doraiswamy said while he does not want to put pressure on the company by targeting a certain number, especially during volatile market conditions, he is hopeful it will soon touch that level, depending on the market trajectory. As of 30 June, LIC's assets under management were at over ₹57 trillion (around $650 billion).
Read more: LIC says health insurance foray delayed on likely policy change; open to 'all options'
'I would like to continue to focus on enhancing our assets under management. Actually, enhancing our business, through which—as a by-product—the assets under management should grow," he said.
From the perspective of LIC's investments in the Indian markets, Doraiswamy said some counters are overpriced as of now, in part owing to the geopolitical tensions. Even so, he expects value opportunities to remain available for LIC to invest in as a long-term investor. LIC was one of the major investors in State Bank of India's recent ₹25,000-crore QIP, through which the insurer increased its stake in the lender to 9.49% from 9.21%.
'The kind of assets that we have to manage is such that we need to look at such big opportunities as well. SBI is expected to be a major part of the Indian economy's growth story. So, when it presented an opportunity for us to invest, we have to take a major stake in it," he said, adding that LIC will continue to look at such similar opportunities in other sectors as well. 'We don't mind being anchor investors or being a major investor in any such big issue, provided the institution that is coming up has value over a period of time, not just short-term."
