LIC IPO launch: All eyes set on mega listing, what should investors do?
- In the IPO, 50% is reserved for qualified institutional buyers (QIB), 35% of the portion is kept for non-institutional investors (NII), and the remaining 15% is set for retail individual investors (RII).
The much-awaited initial public offering (IPO) is just around the corner. LIC which is the leader in the insurance segment - is going to launch it's nearly ₹21,000 crore IPO next week. This IPO is the biggest ever in the history of the market. Through the issue, the government is offloading a 3.5% stake and hence its pure offer for sale.
LIC IPO is set to open on 4 May and will be available for subscription till 9 May. The issue will be open for anchor investors on 2 May.
The IPO comprises an offer for sale up to ₹20,557 crore where the government will offload a 3.5% stake. A total number of 22.10 crore equity shares are set to be offered under the issue.
In the IPO, 50% is reserved for qualified institutional buyers (QIB), 35% of the portion is kept for non-institutional investors (NII), and the remaining 15% is set for retail individual investors (RII).
The government has proposed to keep 10% reserved for policyholders. However, policyholders who have their updated PAN link with their LIC policies and hold a Demat account are eligible for subscribing to the IPO.
A price band of ₹902 - 949 per equity share has been fixed.
Apart from the government's strategic sale plan, the object of the IPO is also to achieve the benefits of listing the Equity Shares on the Stock Exchanges.
Post the IPO, the government's shareholding in LIC will be 96.5% from the current 100%.
What are the key triggers of the IPO?
Kajal Gandhi, Vishal Narnolia, and Sameer Sawant, Research Analysts at ICICI Securities have highlighted the following key triggers:
1. The favorable demographic tailwinds supporting India’s growth story, combined with under penetration in life insurance. GWP for life insurers is forecasted to grow at 14-15% CAGR in FY21-26 to reach ₹12.4 lakh crore.
2. Market leadership (~61.6% share) with a cross-cyclical product mix dominated by participating products. Focus on further diversifying the product mix by increasing the contribution of non-participating products.
3. Presence across India through an omnichannel distribution network with an unparalleled agency force sourcing ~96% of the new premium as of December 31, 2021.
4. Strong geographical presence across India with 2,048 branch offices and 1,559 satellite offices covering 91% of districts in India.
5. Largest asset manager in India with an established track record of financial performance and profitable growth.
What should investors do?
The analysts at ICICI Securities said that "LIC is a market leader in the Indian life insurance industry with a strong distribution network and diversified product suite. Embedded value for LIC as of September 30, 2021, was at ₹5.396 lakh crore. At the upper end of the price band, the company is valued at ~1.1x EV as of September 30, 2021."
"We assign an UNRATED rating to the IPO," the trio said.
The trio pointed out key risks such as adverse variation in persistency metrics that could have a material adverse effect on LIC's financial condition. Further, they explain that interest rate fluctuations and volatility in capital markets may adversely affect profitability.
Also, they said that there is significant technical complexity involved in embedded value calculations and the estimates used in the embedded value reports could vary materially if key assumptions are changed.
LIC has been providing India life insurance for more than six decades and is the largest insurer in India with a market share of 61.6% in terms of premium and a share of 61.4% e in terms of New Business Premium. LIC holds dominance with 71.8% market share in terms of the number of individual policies issued, and an 88.8% market share in terms of the number of group policies issued for the nine months ended December 31, 2021.
Also, LIC is the largest asset manager in India as of December 31, 2021, with an AUM of ₹40.1 lakh crore on a standalone basis, which was more than 3.2 times the total AUM of all private life insurers in India, and also approximately 15.6 times more than the AUM of the second-largest player in the Indian life insurance industry in terms of AUM. Not just that, LIC's AUM is more than 1.1 times the entire Indian mutual fund industry’s AUM and17% of India’s estimated GDP for Fiscal 2022, LIC's draft credits CRISIL report.
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