LIC IPO opens for Subscription today; GMP strong, analysts gung-ho on largest public issue ever

LIC IPO Opens: Life Insurance Corporation of India’s (LIC) IPO is set to open for subscription today, ending years of wait. The insurance behemoth has already raised Rs 5,627 crore, of the total Rs 21,000 crore, from anchor investors ahead of the public issue, with most demand coming from domestic institutional investors. Retail investors will get the opportunity to subscribe to the issue from today in a fixed price band of Rs 902-949 per share, and an additional discount of Rs 45 per share. Domestic brokerage and research firms seem gung-ho on the prospects of LIC with most pinning a ‘Subscribe’ rating on the issue. LIC shares were trading at a grey market premium of Rs 85 apiece in the unlisted space ahead of the issue.

LIC IPO price details

LIC’s Rs 21,000 crore IPO is entirely an offer for sale (OFS) by the Government of India – the existing stakeholder. The government is looking to sell 22.1 crore equity shares with a face value of Rs 10 each. Although the price band for LIC has been kept at Rs 902-949 per share, LIC has offered various discounts for investors looking to subscribe to the issue. Retail investors and LIC employees looking to become shareholders of LIC will get a Rs 45 per share discount while LIC Policyholders will get a discount of Rs 60 per share.

Investors can bid for LIC IPO in a bid lot size of 15 equity shares, and multiples thereafter. Through the IPO, LIC’s promoter shareholding will drop to 96.5% from the current 100%, while public shareholding will increase to 3.5% from zero.

Massive opportunity

Life Insurance Corporation of India Ltd has been providing life insurance in India for more than 65 years and is the largest life insurer in India, with a 61.6% market share in terms of premiums, said analysts at LKP Securities. In terms of AUM, LIC is the largest asset manager in India with an AUM of Rs 40 lakh crore at the end of 2021. “LIC’s investments in listed equity represent around 4% of the total market capitalisation of NSE as at December 31, 2021,” analysts said.

With all its might, LIC is an unparalleled force. “LIC has the largest individual agent network of 1.3 mn – 6.8x the 2nd largest life insurer player in India,” Motilal Oswal said in a note. LIC works in an underpenetrated market with huge potential to grow. “India’s life insurance penetration stood at just 3.2% in CY20 vs. 7.6%/6.4%/3.4% in Singapore/ South Korea/Thailand — its Asian peers. The protection gap for India is also the highest at 83% (CY19) amongst APAC,” the brokerage firm said.

Strong financial performance

In the first nine months of the financial year 2022, LIC had a net profit of Rs 17 billion. This was above Rs 8 billion for SBI Life, Rs 9 billion for HDFC Life, and 6 billion for ICICI Prudential Life. In the three financial years preceding the fiscal year ending March 31, 2022, LIC has had a net profit of Rs 2627 crore, Rs 2710 crore, and 2974 crore.

Valuation attractive, rating ‘Subscribe’

LIC is valued by analysts at Motilal Oswal at 1.1x 1HFY22 EV which is at significant discount to its private listed peers. “ LIC with its dominant position is well placed to capture the highly underpenetrated life insurance industry in India. We like its increasing focus on non-par products which could boost its VNB margins,” the brokerage firm said while recommending Subscribing to the issue. LKP Securities values LIC at 1.1x of its 2QFY22 Indian Embedded Value (Market capitalization/Embedded value: Rs 6 trillion/Rs 5.39 trillion). They added that currently listed insurance companies trade at a Market capitalization/EV multiple of ~2.8x. Analysts at Nirmal Bang and Anand Rathu also recommend ‘Subscribe’ for LIC IPO while valuing it at a discount to peers.

LIC will become the largest IPO on Dalal Street pipping Paytm, which raised Rs 18,300 crore last year. Prior to this, Coal India (2010) was the largest issue at nearly Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore.