Life Insurance Corporation of India (LIC), the state-run insurance behemoth, will hit the primary market on May 4, 2022. The company has set the price band for its initial public offering (IPO) at ₹902-949, and at the upper end of the price band, LIC is estimated to have a market capitalization of ₹6.07 lakh crore.
LIC IPO is an entire offer for sale (OFS). Promoter, the Government of India, will sell a 3.5% stake or 22.13 crore shares in the company via the IPO. The government will mop up around ₹21,000 crore from this public issue. But that is not the only reason why this IPO is noteworthy. Here are some interesting facts about the LIC IPO, that you may or may not know:
Despite the cut in size, the LIC IPO will be India's biggest-ever IPO
LIC IPO is worth around ₹21,000 crore, making it the biggest public issue in India. The government had earlier planned to sell a 5% stake in the company at a higher valuation, but due to unfavourable market conditions, the IPO size was reduced.
Even after a size cut, LIC IPO will still be the biggest ever in the Indian market, outpacing the Paytm IPO, which was worth ₹18,300 crore.
Unique policyholder discount
LIC has reserved 2.21 crore shares, or 10%, for policyholders and 15.81 lakh shares, or 0.7%, for its employee in the IPO. The retail investors and employees will get a discount of ₹45, while policyholders will get a ₹60 discount, provided their PAN Card is linked to the policy.
The LIC’s policyholders’ quota is a unique and first-of-its-kind offering. The policyholders interested in applying for the IPO under the policyholder quota must ensure that their PAN information is linked with their policies and they have a Demat Account.
NRI Policyholders and those covered under group insurance policies will not be eligible under the Policyholder Reservation Portion.
If a LIC policyholder is also an employee of the company, he can apply for LIC IPO under three categories separately: LIC Policyholders, LIC Employees and Retail Individual Investors categories.
LIC is India’s largest asset manager
LIC is the largest asset manager in India as of December 31, 2021, with a total asset under management (AUM) (comprising policyholders’ investment, shareholders’ investment and assets held to cover linked liabilities) of ₹40.1 lakh crore on a standalone basis.
LIC’s AUM is more than 3.2 times the total AUM of all private life insurers in India and is approximately 15.6 times more than the AUM of the second-largest player in the Indian life insurance industry.
Moreover, LIC’s AIM is more than 1.1 times the entire Indian Mutual Fund industry’s AUM and 17.0% of India’s estimated GDP for Fiscal 2022.
LIC’s policyholders’ funds have a well-diversified investment portfolio. As on December 31, 2021, on a standalone basis, LIC’s policyholders’ investment portfolio included 38.09% central government securities, 24.56% equity securities, 24.25% state government securities and 8.35% corporate bonds, according to the draft red herring prospectus (DRHP) filed by the company.
Further, LIC is also the largest institutional investor in the Indian equity markets with a total equity AUM of $130 billion, giving LIC a 20% share of domestic institutional equity AUM—a shade of more than half of all equity mutual funds in India.
With this, LIC has about 4% stake in Indian equities, making it the single largest stakeholder after the government (promoter stake), as per the DRHP and LIC annual report.
LIC market share, financials, valuation
LIC is the largest life insurer in India and the fifth-largest globally. It has a 61.6% market share in terms of Gross Written Premium (GWP), a 61.4% market share in terms of New Business Premium (NBP), a 71.8% market share in terms of the number of individual policies issued, an 88.8% market share in terms of the number of group policies issued for the nine months ended December 31, 2021, as well as by the number of individual agents, which comprised 55% of all individual agents in India as on December 31, 2021.
LIC’s total net profit for the fiscal year ending March 2021 stood at ₹2,974.14 crore, higher than ₹2,710.48 crore in FY20. Its AUM at the end of March 2021 was at ₹ 37,46,404.47 crore, while that at the end of March 2020 was ₹34,14,174.57 crore.
For H1 FY22, LIC reported a value of new business (VNB) margin of 9.3% compared to FY21’s VNB margin of 9.9%. The absolute value of VNB stood at ₹4,167 crore for FY21.
On the valuations front, LIC seems to be reasonably valued. The valuation of LIC is pegged at ₹6.07 lakh crore, which is around 1.1 times its September 2021 Embedded Value (EV), i.e., the aggregate of its net asset value plus future discounted profits, of ₹539,686 crore. This is at a significant discount compared to the Price/Embedded Value (P/EV) of its listed peers.
Other insurance players such as HDFC Life Insurance Company trades at 82 times its earnings, ICICI Prudential Life Insurance Company trades at 79 times, and SBI Life Insurance Company at 78 times.
71% of anchor allotment for LIC IPO made to 15 mutual funds
Ahead of its mega IPO, LIC raised ₹5,627.27 crore from 123 anchor investors as they subscribed to 5,92,96,853 shares at ₹ 949 per equity share, the upper end of the price band. Around 71.12% of the anchor book was allocated to 15 domestic mutual funds (MFs) through 99 schemes, according to a regulatory filing.
Foreign portfolio investors (FPIs) who participated in the anchor book included the Government of Singapore, Government Pension Fund Global, Societè Generale, Invesco India, BNP Investments LLC, Saint Capital Fund and Monetary Authority of Singapore.
Among the major domestic Mutual Funds were names like SBI Mutual Fund, HDFC Mutual Fund, ICICI Prudential Mutual Fund, Axis Mutual Fund, Nippon Life, Kotak Mahindra Life Insurance, L&T Mutual Fund, Tata Investment Corporation, etc.
The other government entities included NPS Trust managed by SBI and UTI.
Timing of the issue
The government has launched the LIC IPO at a time when equity markets globally are facing heightened volatility amid the Ukraine-Russia war. The Indian market is also undergoing a bout of foreign capital outflows, sustained selling, lack of investor interest amid fears of rising interest rates, high inflation and uncertain macro-economic condition. Was this the right time for the IPO? Should it have been pushed to a later date? We will all know the answers soon enough.
To invest in IPOs you need to have access to a Demat Account. With a Demat Account from HDFC Bank, you can get started with your investments through our quick and hassle-free process. Click here to get started.
*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice before you take any/refrain from any action.
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