Even with LIC’s IPO set to roll out next week, the much-anticipated offering has always been in the spotlight due to its sheer size and the company’s huge market share in the life insurance segment. Although most analysts have given the issue a “Subscribe” rating, some are also warning them of the pitfalls before investing in the IPO.
Samco Securities, Religare Broking, Anand Rathi and Marwadi Financial Services have rated the state insurance giant’s IPO as Subscribe. However, there are some cautionary tales that investors need to be aware of.
Life Insurance Corporation (LIC) does not have a strong digital presence and almost all of their policies are sold through agents. According to the company’s draft papers, only 36 percent of individual renewal awards are collected digitally, compared to over 90 percent for private players. Analysts said that if this trend continues, the overall cost of LIC is likely to increase in the future.
LIC’s Value of New Business (VNB) margin is low compared to its private sector peers. The state insurer’s DNO was 9.9 percent as of September 2021, while peers ICICI Prudential Life, HDFC Life, SBI Life, Bajaj Allianz Life and Max Life reported DNO margins in the range of 11 to 27 percent.
Life Insurance Corporation has a 64 percent market share of total life insurance premiums. However, it has lost market share to its private competitors. The state insurer grew at a compound annual growth rate (CAGR) of 9 percent between 2015-16 and 2020-21, while private insurers saw 18 percent growth over the same period.
LIC IPO: date, size, quota
The IPO, which opens to the public and policyholders on May 4 and runs until May 9, has a price range of Rs 902 to Rs 949 per share. There will be a rebate of Rs 60 per share for policyholders and a rebate of Rs 45 for employees and retail investors. The share allotment is expected to take place on May 12th and the listing on May 17th.
The IPO is expected to raise up to Rs 21,000 crore. Its valuation is at Rs 6,00,000 crore which is 1.11 times the embedded value of around Rs 5,40,000 crore. A bidder can invest in at least one lot of 15 shares and thereafter in multiples of 15 with a maximum cap of 14 lots.
Retail investors can participate in 35 percent of the IPO’s size, while 10 percent of the IPO’s stock is reserved for policyholders. Qualified institutional buyers have access to 50 percent of the shares. The remaining five percent is reserved for non-institutional buyers.
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