Four out of 5 big IPOs of CPSEs disappointed investors

Barring a ₹4,000 crore Initial Public Offering (IPO) from Central Public Sector Enterprises (CPSEs) that hit the market during the past 12 years, investors have been disappointed that the current market price is below the issue price. Insurance giant Life Insurance Corporation (LIC) is the latest to join that list.

A total of 23 CPSEs came into the IPO market between 2010 and 2022. Of these, LIC is the largest, followed by Coal India, General Insurance Corporation, New India Assurance, Indian Railway Finance Corporation and Hindustan Aeronautics Limited (HAL). Barring HAL, all the other five stocks declined. As per data collected by Prime database, LIC, Coal India and GIC had issue size of ₹10,000 crore or more, while the remaining three (NIA, IRFC and HAL) had issue size between ₹4,000 crore and ₹10,000 crore . The issue size of the remaining 17 IPOs to hit the market ranged between ₹120 crore and ₹1,500 crore.

BSE data shows that among over 4,000 crore IPOs, only HAL has given better returns to investors, while LIC shares have shed more than a quarter of their issue price of Rs 949 and are priced at ₹ 904 (retail investor) discounted price. ) and ₹889 (policy holder). Though the government has termed the fall as a ‘temporary setback’, it claims potential for a rally in LIC shares. “LIC will update its embedded price by the end of June which will give EVs by March 31, 2022,” a government official said.

Experts opinion

Ravi Singh, President and Head of Research, Share India Securities said that during the last financial year, private life insurance companies grew their individual single premium business by 27 per cent to ₹14,709 crore, group non-single premium business by 40 per cent to ₹₹ have make. 356.43 crore and the individual non-single premium segment grew 24 per cent to ₹44,705 crore in which LIC fell significantly. “Compared to its private peers, LIC’s network is large and old, but the segment-wise business deficit clearly shows that LIC is struggling to acquire new customers and retain existing customers,” he said. They said.

ANMI (Association of National Exchange Members of India) President Kamlesh Shah felt that the timing of the issue was not right in view of the uncertainties brought by international factors including Ukraine war, inflation, crude oil prices etc, which affected foreign countries. has done. market performance.

Agreeing with Singh, he said LIC is dependent on agent-led distribution channel, while “its private partners are benefiting from banking channels for product distribution and digital channels for retailing”.

private companies shine

While many PSUs have disappointed investors, other private sector companies have done extremely well. Giving reasons, Singh said that unlike private companies, the government cannot run a firm only for profit. Most of the public sector enterprises are still struggling to transform themselves enough to function effectively and adapt to the rapid digitization. Therefore, “public sector stocks will always be undervalued compared to private peers,” he said.

According to Shah, apart from commercial purposes, PSUs have the stuff of ‘running in the public interest’. Private sector units are considered to be efficient as compared to their counterparts in public sector undertakings. Even the government has at times admitted that its role is not to run business but to govern. In short, there are several parameters on the basis of which valuation of PSU units will be considered undervalued,” he said.

Published on

12 June 2022