The Rs 21,000-crore initial public offer (IPO) of Life Insurance Corporation of India (LIC) will open today. The public issue, which is the largest ever in the Indian market, has already collected Rs 5,620 crore from anchor investors on May 2.
The government is offloading 3.5 per cent stake or 22,13,74,920 shares in the insurer through the IPO. Stake of the government, which currently stands at 100 per cent, will be trimmed to 96.50 per cent after the IPO.
Shares in the IPO will be available in a price band of Rs 902- Rs 949.
The allotment of shares will be done on May 12, 2022. Lot size of the IPO is 15 shares bidding for which one will have to spend Rs 14,235. A retail individual investor can apply for up to 14 lots or 210 shares by spending Rs 1,99,290.
The stock is likely to be listed on BSE and NSE on May 17.
The firm has fixed Rs 2 lakh investment limit each for policyholders, employees, and retail investors' quotas.
KFin Technologies Limited is the registrar to the IPO.
Here’s a look at what brokerages and analysts have to say on the prospects of the IPO.
Marwadi Financial Services
"Considering the Sept 21 embedded value of Rs 53,96,860 mn, the company is going to list at a P/EV of 1.1 x with a market cap of Rs 60,02,423 mn whereas its peers namely HDFC Life and SBI Life are trading at P/EV of 4.0x and 3.0x. We assign 'Subscribe' rating to this IPO as LIC is the largest life insurer in India and a trusted brand with an established track record of financial performance and profitable growth. Also, it is available at reasonable valuation as compared to its peers," said the financial services firm.
"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 per cent 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, improvement in profitability due to changes in surplus distribution norms. Hence, we assign a 'Subscribe' rating on a short to medium term basis," the brokerage said.
"As of 31 Dec. 2021, LIC had 61.4 per cent market share in NBP. Further it had 71.8 per cent and 88.8 per cent market share in terms of number of individual and group policies issued, respectively. LIC had 13.3 lakh individual agents, which was 55 per cent of the total agent network in India. Due to its poor presence in the ULIPs, pure protection etc., it is losing market share to the private insurers. However, post change in the surplus distribution policy and expecting higher focus on the non-participating business, would strengthen LIC’s market positioning and returns for its shareholders. At the higher price band, LIC is demanding a P/EV multiple of 1.1x, which is at significant discount to the multiples of private players (ranging from 2.5-4.2x). Thus considering the above observations, we assign a SUBSCRIBE rating for the issue," the brokerage said in a report.
Yash Gupta, Equity Research Analyst, Angel One said, "While there are concerns over LIC regarding market share loss in individual insurance businesses and historically lower margins, we believe that valuations factor in most of the negatives. Expected improvements in product mix and greater transfer of surplus to shareholders account over the coming years are expected to drive profits from current low levels, which along with cheap valuations provide comfort. Moreover, a discount of Rs 45 and Rs 60 for retail investors and LIC policyholders makes the issue more attractive for them. Hence, we are assigning a 'SUBSCRIBE' recommendation to the issue."
AR Ramachandran, Co-founder & Trainer, Tips2Trades said, “Even though the current IPO valuations seem much better than its competitors as compared to a few months back, our advice to investors would be to subscribe only for listing gains. This is because despite being a leader, we believe LIC will slowly start losing market share to other players mainly HDFC Life & ICICI Prudential. Also, this being a very minor stake sale, we believe investors could get lower levels later when the government further dilutes the stake in the coming months. "
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