The most awaited IPO is finally here! The initial public offering (IPO) of Life Insurance Corporation of India (LIC) is all set to open on May 4 with the price band of ₹902-949 per equity share. The issue will close on May 9.
The government will disinvest a 3.5 percent stake in LIC to garner ₹21,000 crore. The IPO will entirely be an offer for sale (OFS) by the government and will not comprise any fresh issue of equity shares.
It has offered a discount of ₹45 for retail shareholders and employees and a discount of ₹60 for policyholders.
LIC is the largest life insurer in India with a market share of 61.4 percent in terms of new business premium (NBP). This is around 1.59 times of the total private life insurance sector and around 6.7 times the NBP for the second-largest player in the industry.
LIC is the largest Asset Manager in India with an asset under management (AUM) of ₹40.1 lakh crore which is 1.1 times more than the AUM of the Indian mutual fund industry.
The trust in the brand is also unparalleled. Recently, in an interview with MintGenie, B Gopkumar, MD & CEO, Axis Securities in an interview with MintGenie said that investors should feel assured by the long legacy and the strong brand value that the LIC enjoys. From a long-term perspective, he is confident that LIC would be a good bet.
"The launch of the IPO is at attractive valuations, and at the upper end of the price band, the stock would trade at 1.1x market Cap/EV (trailing, H1FY22 embedded value) v/s the industry average of ~3x, thus making the stock attractive. Additionally, it is not only the discount offered to retail investors, which would deliver a marginally higher return, but also the assurance of owning a stock like LIC, a market leader in the life insurance space. A long legacy and a strong growth runway despite intense competition given the under-penetration (India’s life insurance penetration at 3.2 percent as per RHP) of the life insurance industry, along with higher protection gap, also makes the IPO more attractive," Gopkumar said.
Shivam Bajaj, Founder & CEO at Avener Capital says, "Amidst the volatile environment, the revision in the LIC IPO Valuation demonstrates the keenness of the government to deliver on the IPO. The revised IPO valuation can potentially unlock a favorable opportunity for investors for wealth creation. Being a landmark issue for the nation, LIC is expected to be pinned on global portfolio watchlists,"
Geojit Financial Services
At the upper price band of Rs.949, LIC is available at P/EVPS (Embedded Value Per Share) of 1.1x which is at a discount of 65 percent compared to the average valuation of private life insurance players. Even though headwinds like declining market share, lower short-term persistency ratios and sub-par margins demand a discount to private players, the current valuation is attractive considering its strong market presence, and improvement in profitability due to changes in surplus distribution norms. Hence, we assign a “Subscribe” rating on a short to medium-term basis.
LIC has a diverse portfolio of insurance and investment products to cater to the needs of individuals. The company is well-placed owing to its omnichannel distribution network comprising 1.33 million agents, several partners and alternate channels, its trusted “LIC” brand value, and 65 years of lineage. Moreover, LIC is backed by its strong financial track record and experienced management team. In view of the giant market share, largest assets under management, strong brand, diverse portfolio of products, and valuation comfort, we recommend SUBSCRIBE to the issue.
LIC stands to benefit given its leadership position, combined with its continued focus on diversifying product mix, strengthening its distribution network and leveraging technology to aid growth and achieve operational efficiencies. It added that key risks are loss in market share and any adverse regulatory changes.
Going forward, the company has stated it would be focusing strongly on the non-par segment, particularly on term life protection. Currently, the share of individual non-par products is low at 5.1 percent. As the share of non-par products increases, we believe there is good room for margin expansion.
Given the opportunity, India's life insurance NBP is expected to grow at 14-16 percent CAGR over the next decade. In light of LIC’s market positioning and expected product launches, the company is poised to benefit. At the upper price band of ₹949, the issue is valued at 1.1x
embedded value (Sep ‘21) which is at a significant discount to private sector valuations. The GoI will be diluting a 3.5 percent stake. We recommend subscribing to the issue.