India's most valuable PSU remains a wealth destroyer

Life Insurance Corporation of India (LIC) overtook State Bank of India on Wednesday to become India's most valuable state-run company in terms of market capitalisation.

At the start of trading on Wednesday, LIC had a market capitalisation of ₹5.66 lakh crore, compared to SBI's ₹5.64 lakh crore, though SBI recovered from opening lows to reclaim the top spot for a brief period again.

However, despite becoming India's most valued company, LIC has caused loss of investor wealth. The stock listed at a discount in May 2022, a level it only crossed on Tuesday, nearly two years after listing. Although the stock has crossed the retail IPO price of ₹904, it remains below the original IPO price of ₹949.

Over the last 12 months, the stock has gained only 27%, compared to other PSE index constituents like REC, PFC, BHEL and HAL, which have gained anywhere between 140% to 250% over the same time frame. In fact, LIC shares are the second-worst performers on the Nifty PSE index over a 12-month period, only ahead of Container Corporation of India, which is up 25%.

LIC remains India's biggest IPO where the government sold a 3.5% stake to mobilise over ₹21,000 crore. That is the only stake sold in the open market yet as the government continues to hold the remaining 96.5%. DIPAM Secretary Tuhin Kanta Pandey in his prior interactions with CNBC-TV18 had mentioned that an LIC Follow-On Public Offer (FPO) is not on the cards yet.

Additionally, unlike other PSUs, LIC has been granted an exemption from complying with minimum public shareholding norms. It can achieve the 25% minimum public shareholding by May 2032, instead of the usual three years.

LIC shares have recovered from their 52-week low of ₹530 and despite this rally are trading at 0.85 times price-to-embedded value.

Shares of LIC are trading 0.6% lower at ₹887.2. The stock is up 11% over the last month.