LIC IPO: 10 things you must know before subscribing

India's biggest institutional investor Life Insurance Corporation is set to hit the primary market on May 4 to raise Rs 21,000 crore from investors. The company 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. Here are key things you should know before subscribing to the issue.

About LIC: It is the largest company in the Indian insurance space with a market share of above 61.6 per cent in terms of premiums and 61.4 per cent in new business premium as of December 31, 2021. The company offers participating insurance products and non-participating products like unit-linked insurance products, saving insurance products, term insurance products, health insurance, and annuity and pension products. As of December 31, 2021, LIC had a total asset under management of Rs 40.1 lakh crore on a standalone basis. The company has 8 zonal offices in Delhi, Mumbai, Kolkata, Chennai, Kanpur, Patna, Bhopal, and Hyderabad. It also operates globally in Fiji, Mauritius, Bangladesh, Nepal, Singapore, Sri Lanka, UAE, Bahrain, Qatar, Kuwait, and the United Kingdom.

In India, LIC had the largest agent network of 1.35 million individual agents (6 times of private life insurers) as of March 31, 2021, which accounted for 55 per cent of the total agent network in the country and the company’s agents have the highest productivity (3 times of private life insurer).

Financials: LIC’s total asset has grown at a CAGR of 8 per cent from FY17 to FY21 to reach Rs 36.8 lakh crore while its net premium earned grew at a CAGR of 6 per cent from FY17 to FY21 to reach Rs 4 trillion.

LIC’s profit after tax has grown at a CAGR of 5.1 per cent to reach Rs 2970 crore during the same period. The company reported a GWP (gross written premium) growth of 7.4 per cent CAGR over FY17-21. LIC saw a profit after tax of Rs 1670 crore for 9MFY22. For the 9MFY22, NBP stood at Rs 1,58,040 crore.

“We expect the GWP for LIC to grow at 13 per cent CAGR over FY21-25, driven by 17 per cent CAGR growth in NBP,” KRChoksey Shares and Securities said in a report.

About the issue: With this IPO, which is through an offer-for-sale, the government is aiming to divest its 3.5 per cent stake in the insurer by selling 22,13,74,920 shares.

Global benchmarking: Amongst the peer set, LIC’s dominance is unparalleled globally with no other life insurance player in any country enjoying such a high market share in its geography. LIC ranks fifth in terms of net premium earned, with a premium of $56 billion in FY21. Over a period of 12 months ending in CY20, AXA S.A. ($113 bn), Ping An Insurance ($110 bn), Allianz SE ($909 bn), China Life Insurance Company ($88 bn) are the only global peers having a net premium higher than LIC. In terms of growth, Ping An Insurance has grown at a CAGR of 15 per cent over the last four years, followed by China Life Insurance Company (9 per cent) and LIC (6 per cent).

Should you subscribe? Brokerages have given thumbs up to the issue citing fair valuation and discounts offered by LIC to retail investors, policyholders and employees. KRChoksey Shares and Securities said, “We expect 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/ 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. As a result, we recommend subscribing to the IPO for listing as well as long term gains.”

Anand Rathi Share and Stock Brokers said, “The LIC has valued the IPO at 1.11 times its embedded value with a market cap of around Rs 6 lakh crore which we believe is quite lower when we 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 for investors.”

Discounts to investors: The insurer 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.

Lot size: Investors can bid for a minimum of 15 equity shares (1 lot) and in multiples thereafter.

Book running lead managers: Kotak Mahindra Capital Company, Axis Capital, BofA Securities India, Citigroup Global Markets India, Nomura Financial Advisory and Securities India, Goldman Sachs India Securities, ICICI Securities, JM Financial, JP Morgan India and SBI Capital Markets are the book running lead managers of the issue.

GMP hints at listing gains: According to IPO Watch, shares of LIC command a premium of Rs 75 in the unlisted market, indicating an 8 per cent gain on the listing.

Listing: Shares of LIC are proposed to be listed on BSE and NSE both. At present, the tentative date of listing of shares is on or about May 17, 2022, according to KRChoksey Shares and Securities.