The most awaited and the biggest IPO to date, that of the insurer Life Insurance Corporation of India (LIC) is set to hit the primary market on May 4 to raise Rs 21,000 crore from investors. While giving a ‘Subscribe’ rating to the issue, market analysts believe that it is a milestone event for the Indian capital markets as it may bring millions of new investors from Tier 2 and Tier 3 towns for the first time.
The insurance behemoth has fixed a price band of Rs 902-949 for the public issue, which will close on May 9. At the upper price band, the insurer will have an estimated market capitalisation of Rs 6 lakh crore. LIC has offered a special discount of Rs 45 per share to retail investors and employees of LIC. Moreover, there is a discount of Rs 60 for policyholders.
Here’s what at least 10 analysts on Dalal Street have to say about the IPO:
Geojit Financial Services: Subscribe
At the upper price band, LIC is available at P/EVPS (embedded value per share) of 1.1 times 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 and strong sector growth outlook.
KR Choksey Shares and Securities: Subscribe
The company to focus on its strong growth momentum by gaining its market share and focusing more on underwriting quality and the high margin product mix. Given the growth prospects for the pension and annuity segment and the company’s position as the market leader in the insurance sector, the company’s valuation will be at par with its private peers. Investors can subscribe to the IPO for listing as well as long term gains.
Marwadi Financial Services: Subscribe
Considering the September 2021 embedded value of Rs 5,39,686 crore, the company is going to list at a P/EV of 1.1 times with a market cap of Rs 6,00,242.3 crore whereas its peers namely HDFC Life and SBI Life are trading at P/EV of 4 times and 3 times, respectively. Marwadi Financial Services has assigned a ‘Subscribe’ rating to the issue 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 a reasonable valuation as compared to its peers.
Anand Rathi Share and Stock Brokers: Subscribe
At the upper price levels, LIC’s embedded value with a market cap of Rs 6,00,200 crore is quite lower when compared with the three listed peers like HDFC Life Insurance, SBI Life Insurance and ICICI Prudential Life Insurance where the average embedded value stood at Rs 3,10,500 crore and the average market capitalisation-to-embedded value ratio arrived at 3.4 times. Hence, the issue looks quite attractive to investors.
Nirmal Bang Securities: Subscribe
Given the opportunity, India's life insurance new business premium (NBP) is expected to grow at 14-16 per cent CAGR over the next decade. In light of LIC’s market positioning and expected product launches, the company is poised to benefit. The issue is valued at 1.1 times EV which is at a significant discount to private sector valuations.
Angel One: Subscribe
There are concerns over LIC regarding market share loss in the individual insurance business and historically lower margins, the brokerage believes 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, the discount of Rs 45 and Rs 60 for retail investors and LIC policyholders makes the issue more attractive for them.
Green Portfolio (PMS): Subscribe
Retail investors should invest in the LIC IPO for listing gains. However, the business margins of around 10 per cent are lower than the private peers (around 20-25 per cent), the scale of the business, the market leadership, track of managing a large AUM in the past, and most importantly the brand value derives comfort. The valuations of the business are near 1-1.5 times the embedded value which is at a substantial discount to listed private peers. Policyholders should also subscribe to the IPO considering the discount they are getting on the price band.
Sharekhan: Attractive valuation
Sharekhan believes that LIC’s IPO should be structurally positive for life insurance, in the long run, considering its size and scale, which may also lead to higher awareness about insurance products benefitting across the sector. At the IPO price band of Rs 902-949, the offer is valued at 1.06-1.11 times its embedded value, which is lower than both domestic and global listed insurers’ average valuation. Hence, the valuation looks attractive given its leading market share in many parameters and highest RoE amongst its global peers.
FundsIndia: Attractive valuation
There will be a lot of first-time investors, especially from the tier 2 and 3 markets to participate in this IPO. This IPO is expected to be a milestone event in the capital markets not just with the issue size but also with the number of demat accounts that will be opened during this period. What the investors would look for before investing in the LIC IPO would be penetration of LIC in markets untouched by the private insurance players, being a first mover in the insurance play in India. LIC has this upper hand and it continues to lead the space with its far reach of the network both through agents and branches. The price at which LIC is coming with an IPO seems attractive on the valuation front.
Proficient Equities: Subscribe with long term objective
LIC is a strong brand to the people and its listing is part of a long-term strategic vision of the government and is meant for long-term value creation for shareholders. Our take is that we won’t be able to determine the true value in the case of LIC as it is a very big entity in itself. There are two ways to look at one in the present case where everyone is buying in policies to safeguard themselves from uncertainties which happened in the past which might be a good opportunity to tap in for LIC going with its brand in long term. Second is due to huge buying power in hands of consumers the margins might reduce in coming terms. One can subscribe with a long-term perspective.
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