LIC IPO gets thumbs up from policyholders; fully subscribed on Day 1

Life Insurance Corporation of India (LIC) policyholders quota has been fully subscribed with retail portion receiving bid 33 per cent till 12:30 pm on Day 1. The insurance behemoth has fixed a price band of Rs 902-949 for the public issue and offered a special discount of Rs 60 to policyholders and Rs 45 per share to retail investors and employees of LIC. The employees' quote has been subscribed 51 per cent so far.

According to statistics, the largest insurance company has currently around 29 crore policyholders, 2 lakh plus employees and 13 lakh agents covering 91 per cent of districts of the country. It manages Asset under management (AUM) of 39 lakh crore, which is more than the GDP of 150 countries and more than total AUM managed by the mutual fund industry which is around 38 lakh crore.

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. Most of the brokerage houses have given a positive rating to the IPO given its fair valuation

Geojit Financial Services gave subscribe rating to the IPO stating “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 also gave subscribe rating to the IPO. “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,” according to the report.

Anand Rathi Share and Stock Brokers report stated: “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, giving thumbs up to the IPO, stated, “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.”

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