The eagerly awaited initial public offering (IPO) is just around the corner. LIC, the market leader in the insurance segment, is about to be launched €21,000 crore IPO next week. This IPO is the largest in the history of the market so far. Through the issue, the government is giving up a 3.5% stake and is thus making its pure offer to sell.
LIC IPO will open on May 4th and can be subscribed until May 9th. The issue will open to anchor investors on May 2nd.
The IPO includes an offer to sell by €20,557 crore, where the government will give up a 3.5% stake. A total of 22.10 billion shares are to be offered as part of the issue.
At the IPO, 50% will be reserved for Qualified Institutional Buyers (QIB), 35% of the stake will be held for Non-Institutional Investors (NII) and the remaining 15% will be reserved for Retail Investors (RII).
The government has proposed keeping 10% reserved for policyholders. However, policyholders who have their updated PAN linked to their LIC policies and have a Demat account are eligible to subscribe to the IPO.
A price range of €902 – 949 per common share.
The purpose of the IPO is to achieve the benefits of a public listing of the shares, in addition to the government’s strategic sales plan.
After the IPO, the state’s stake in LIC will be 96.5% from the current 100%.
What are the main triggers of the IPO?
Kajal Gandhi, Vishal Narnolia and Sameer Sawant, Research Analysts at ICICI Securities, have highlighted the following key triggers:
1. Favorable demographic tailwinds supporting India’s growth story combined with insufficient life insurance market penetration. The GWP for life insurers is forecast to grow by 14-15% CAGR in FY21-26 to reach it €12.4 lakhcrore.
2. Market leadership (share ~61.6%) with a 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 via an omnichannel distribution network with an unparalleled agency sourcing ~96% of new bounty as of December 31, 2021.
4. Strong geographic presence across India with 2,048 branches and 1,559 field offices covering 91% of districts in India.
5. Largest wealth manager in India with an established track record of financial performance and profitable growth.
What should investors do?
Analysts at ICICI Securities said, “LIC is a leader in the Indian life insurance industry with a strong distribution network and a diversified product range. The embedded value for LIC was at September 30, 2021 €5,396 lakhcrores. At the high end of the price range, the company is valued at ~1.1x EV as of September 30, 2021.”
“We are assigning an UNRATED rating to the IPO,” the trio said.
The trio pointed to key risks such as: B. Adverse fluctuations in persistence metrics that could have a material adverse effect on LIC’s financial condition. In addition, they explain that interest rate fluctuations and volatility in capital markets can affect profitability.
They also said that calculating the embedded value involves significant technical complexity and the estimates used in the embedded value reports could vary significantly if the key assumptions are changed.
LIC has been providing Indian life insurance for more than six decades and is the largest insurer in India with a 61.6% market share in terms of premiums and a 61.4% share in terms of new business premiums. LIC is dominant with a 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 31 December 2021 with assets under management of €40.1 lakh crore on a standalone basis, which is more than 3.2 times the total assets under management of all private life insurers in India and also approximately 15.6 times the assets under management of the second largest player in the Indian life insurance industry in terms the assets under management correspond to . Not only that, LIC’s assets under management is more than 1.1 times the assets under management of the entire Indian mutual fund industry and 17% of India’s estimated GDP for FY2022, according to LIC’s CRISIL report.
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