All you need to know about the mega LIC IPO
Published by Sharekhan Education | May 2, 2022
All you need to know about the mega LIC IPO
The issue opens Wednesday, May 4, 2022
The issue closes Monday, May 9, 2022
Issue size Rs. 19,517- 20,557 crore
Type of Issue OFS (up to 22.14 crore shares) Of which employee reservation 1,581,249 Shares Of which policyholder reservation 22,137,492 Shares
Face Value Rs. 10 per share Price Band Rs. 902-949
Bid Lot 15 shares and in multiples thereof
Discount for – Retail category Rs. 45 per share Discount for – LIC employees Rs. 45 per share Discount for – LIC policyholders Rs. 60 per share
Key Positives and Key Negatives about the company
Positives:
- LIC of India is India’s largest insurance provider with a market share of over 61.4% in new business premiums. 61.6% market share in total premium, 71.8% in the number of individual policies, and 88.8% in no. of group policies issued in 9MFY22.
- It offers participating insurance products and non-participating products like ULIP, saving insurance products, term insurance, health insurance, and annuity & pension products
- As of 31 Dec 2021, the total AUM stood at Rs. 40.1 lakh crore. LIC operates through 2,048 branches, 113 divisional offices, and 1,559 satellite offices.
- As of Dec 2021, the individual product portfolio in India comprised 32 individual products (16 participating products and 16 non-participating products) and seven individual riders
- As of Dec 2021, the Corporation’s group product portfolio in India comprised 11 group products
- LIC garners the lion’s share of household savings (flow) – at about 10% each year. It manages more money than the entire mutual fund industry combined.
- They own 4% of all listed stocks in India. It is also the single-largest owner of the Indian govt. bonds (centre + states) (IGBs) – at 19% of outstanding bonds.
- Customers in the age bracket of 27-40 accounted for approximately 42% of individual policies sold in FY2021.
- Presence across India through an Omni channel distribution network
- 1.34 million individual agents
- 72 bancassurance partners
- 174 alternate channel
- 3,463 active Micro Insurance agents
- 4,400 point of sales persons-Life Insurance scheme
Negatives:
- LIC depends heavily on the agency channel whereas private insurers are more bancassurance-driven.
- LIC’s average ticket size is the lowest due to its focus on mass customers.
- LIC’s VNB margin for FY21 stood at 9.3%. This compares to a 23%-29% comparable margin for listed private insurance peers. Its margin is lower than private-sector peers as the product mix is skewed towards participating and group fund management products.
- LIC had an unanticipated intensity in mortality claims from the ongoing COVID-19 pandemic.
- LIC being a State-owned enterprise has the legacy baggage of inefficiency in operations.
- The higher share of EVs comes from investment variance
Outlook and valuation
- LIC’s potential IPO would be structurally positive for the sector in the long run as given its reach and size, it might lead to higher awareness (benefitting private insurers as well).
- We believe the potential issue could bring transparency to LIC’s operations and increase rationality in its business decisions.
- Embedded value (EV) for LIC as of September 30, 2021, was at Rs. 5.3 lakh crore.
- At the upper end of the price band- 949, the company is valued at ~1.1x EV. It is available at a significant discount compared to listed private life insurance companies.
- HDFC Life Insurance is trading at a P/EV of 3.5, SBI Life at 2.9, and ICICI Prudential Life at 2.3. We are having a positive outlook on the company.
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