(By Critique Arora)
Life Insurance Corp of India (LIC) is about to file its draft diversionary prospectus for its IPO with SEBI and while the financial details of the DRHP are still unknown, market experts believe investors could consider a valuation at which the issue is priced and incentives for them to invest in the issue as two main highlights.
“We need good prices and discounts to translate the euphoria surrounding the LIC IPO into big numbers for the entire capital market,” said Hemag Jani, Senior Group VP MOFSL. Policyholders or retail investors could consider incremental rebates in the 5-10% range, Jani said.
ET Now has reported that LIC’s policyholders may get a 5% rebate to issue a price at the upcoming IPO. Additionally, policyholders can get a reserved 10% quota at the IPO, according to a report from ET Now.
While experts believe LIC’s IPO looks interesting at first glance as it holds two-thirds of the market share in the insurance space with nearly 30 million policyholders and 13,000 agents accounting for 55% of the total agent network, investors still need to access the pros and cons of the issue once details of DRHP have been made public.
To further specify what investors should look out for in order to get access to the LIC IPO as there are other companies in this space such as HDFC Life Insurance, SBI Life Insurance, Aditya Kondawar, COO of JST Investments said that one for Insurers can look for embedded value and cost consistency Ratio, Combined Ratio.
The embedded value is the present value of the insurer’s future earnings, and the market capitalization is a multiple of that embedded value.
LIC is expected to have a market capitalization of $200 billion and the embedded value of the IPO is priced at over Rs 5 lakh crore. So it’s 3 times an embedded value, Kondawar said.
The top rated insurer on the market is HDFC Life with a 5x to 6x market cap embedded value multiple. Then there’s SBI Life, which is again 3x, meaning the LIC issue appears reasonably priced, noted Kondawar.
Overall, experts believe now could be a good time for insurers and the entire BFSI sector, as well as for investors to invest in the sector. “The economy is now recovering, so the period for claims settlement is really out of state,” Kondawar said.
However, much of this will depend on the details that investors will learn from the DRHP. The LIC board met Friday to approve the IPO in principle, ET Now had reported, and is likely to file the prospectus with SEBI shortly.