Finance Minister Nirmala Sitharaman on Saturday said insurance major Life Insurance Corporation (LIC) of India will be listed on the bourses as part of the government disinvestment initiative. Riding high on listing of LIC and privatisation of Air India and BPCL, and other state-owned entities, the government has set a divestment target of Rs 2.1 lakh crore for FY21.
In her Budget speech, Nirmala Sitharaman said that the government proposes to sell a part of its holding in LIC by initial public offering (IPO). The minister, however, did not reveal the percentage of holding that it would sell.
Currently, the government holds the entire 100 per cent stake in insurance behemoth LIC, which is a big investor in share sales, including IPOs of state-run companies. In April last year, LIC acquired controlling stake in state-run lender IDBI Bank, thereby making it a private sector bank.
The 60-year-old state-owned firm, LIC, is the country's largest insurer, controlling more than 70 per cent of the market share. The insurer has a market share of 76.28 per cent in number of policies and 71 per cent in first-year premiums.
According to an industry expert, if LIC get listed on exchanges, it would become India's largest company by market capitalisation, overtaking the likes of Reliance Industries (RIL) and Tata Consultancy Services (TCS). Given LIC's small equity base, the proposed IPO is likely to fetch a huge premium to the exchequer.
"LIC is likely to become the country's biggest company by market capitalisation on the day of the listing given it's the largest company managed by assets under management (AUM)," said Kajal Gandhi, Analyst, ICICI Direct.
"Being a government owned entity, it is likely to see valuation gap versus private players. At even 25-30 per cent of its AUM, the company can be valued at around Rs 8-10 lakh crore. Even a 10 per cent dilution will be difficult for market to absorb in one go and the government may look at doing this in lots," Gandhi added.
With market capitalisation of Rs 8.77 lakh crore, Mukesh Ambani-led RIL is the most-valued company, followed by TCS with at Rs 8.12 lakh crore as on February 1, 2020.
LIC's balance sheet is pretty strong, barring asset quality. LIC's total assets under management crossed the historic figure of Rs 30 lakh crore for the first time in FY19 to Rs 31.11 lakh crore, a rise of 9.38 per cent year-on-year. As per the audited figures for FY19, its market value was pegged at Rs 28.74 lakh crore at end-March 2019, up 8.61 per cent. The total income of LIC, which includes total premium and investment income, was around Rs 560,784 crore in 2018-19, a rise of 7.10 per cent.