Finally, India’s Biggest-Ever IPO is Here. LIC IPO

LIC (Life Insurance Corporation of India) has filed its DRHP or Draft Red Herring Prospectus with SEBI, giving way to the largest IPO of India. Don’t you think LIC has the potential of becoming the most prized company after its public listing ─ overturning Reliance Industries Ltd? Well, keep scrolling to get the details!

Get an Insight into LIC’s IPO!

As per the draft share sale prospectus filed with the Securities and Exchange Board of India (SEBI), LIC is about to sell around 316.25 million shares, comprising nearly 5% of its overall equity base. The total equity base of this 65-year-old company stood at 6.32 billion shares.

The initial public offering (IPO) is completely an offer for sale, denoting that the Government will fully take the proceeds and work towards its disinvestment target. During the Union Budget 2022, the Government has pinned down Rs. 78,000 crores as disinvestment receipts for this fiscal year.

The offer document states that a portion of shares below or equal to 5% of the entire offer is booked for employees. Besides, eligible LIC policyholders will get a reservation of another portion below or equal to 10%. They need to be Indian citizens as of the day of the DRHP filing.

The IPO’s pricing will be finalised soon, most probably 2 days before its opening. The employees and policyholders can get a discount relative to the public price. Retail investors will get a reservation of at least 35% of the issue.

What About LIC’s Valuation?

The prospectus remarks that LIC’s embedded value is worth Rs. 5,39,686 crores. the embedded value is a measure that computes a life insurance company’s value ─ it is the addition of all future profits’ present value from the shareholders’ net worth and existing business. IRDAI (insurance regulator) cleared the public offering of LIC in February.

Private life insurance entities are presently trading at 2 to 4 times their embedded value. As per the same measure, the market capitalization of LIC can range from Rs. 10.8 lakh crores to Rs. 21.6 lakh crores. At present, Reliance Industries Ltd is the most valuable Indian firm with a market capitalization of around Rs. 16.10 lakh crores.

A sale of 5% even at Rs. 10.80 lakh crores valuation will net the Central Government Rs. 54,000 crores. It will be nearly 3 times the Rs. 18,300 crores amount that One 97 Communications Ltd. (Paytm’s owner) raised.

Know About LIC’s Market Share!

LIC is India’s largest life insurance provider with a market share of 64.10% with respect to premium and a market share of 66.20% with respect to new business premium. In terms of the total count of individual policies issued and by the headcount of individual agents, this company’s market share is 74.60%. As of 31 March 2021, it consists of 55% of the total individual agents in the country.

Furthermore, as of 30 September 2021, LIC managed assets amounting to Rs. 39.60 lakh crores, establishing itself as India’s largest asset manager. This company’s AUM (Assets Under Management) are over 3.3 times greater than all private life insurers’ total AUM as of 31 March 2021.

Bottom Line

LIC’s IPO will help the Government to reach its revised disinvestment target (Rs. 78,000 crores) during this fiscal year. It will be interesting to watch whether the market can absorb this much-awaited issue amidst surging interest rates, the spike in inflation and volatility worldwide.

The issue’s pricing will hold control. It can be expected that the IPO will conclude before this financial year ends in March 2022.

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Frequently Asked Questions

1. How much QIB will LIC allocate to anchor investors?

LIC can allocate a maximum of 60% of the Qualified Institutional Buyers (QIB) portion on a discretionary basis to anchor investors. Domestic mutual funds will get a reservation of 1/3^rd of the anchor investor share.

2. Who are the merchant bankers to LIC’s issue?

Merchant bankers to LIC’s issue are SBI Capital Markets, Nomura, JP Morgan, Citigroup, JM Financial, BofA Securities, ICICI Securities, Axis Capital, Goldman Sachs and Kotak.

3. In which year was LIC founded?

LIC was founded on 1 September 1956 after the Life Insurance of India Act was passed by the Government of India.

Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.