Even as the LIC IPO is all set to hit the market next week, the much-awaited offer has always been in the limelight due to its sheer size and the company’s huge market share in the life insurance segment. Although most analysts have given the ‘subscribe’ rating to the issue, some are also cautioning them about the pitfalls before investing in the IPO.
Samco Securities, Religare Broking, Anand Rathi, and Marwadi Financial Services have given the ‘subscribe’ rating to the state-owned insurance behemoth’s IPO. However, there are some caution points that investors need to keep in mind.
Life Insurance Corporation (LIC) does not have a strong digital presence and almost all of its policies are sold through agents. According to the company’s draft papers, only 36 per cent of individual renewal premiums are collected digitally, compared with over 90 per cent for private players. Analysts said that if this trend continues, the total cost for LIC is likely to increase, going forward.
LIC’s value of new business (VNB) margin is low as compared to its private sector peers. The state-owned insurer’s VNB as of September 2021 stood at 9.9 per cent, whereas its peers ICICI Prudential Life, HDFC Life, SBI Life, Bajaj Allianz Life and Max Life reported the VNB margin in the range of 11-27 per cent.
Life Insurance Corporation has a market share of 64 per cent in terms of total life insurance premiums. However, it has been losing the market share to its private peers. The state-owned insurer grew at a compound annual growth rate (CAGR) of 9 per cent between 2015-16 and 2020-21, while private insurers witnessed a growth of 18 per cent during the same period.
LIC IPO: Date, Size, Quota
The initial public offering, which will open for the public and policyholders on May 4 and continue till May 9, has a price band of Rs 902-Rs 949 per equity share. It will have a Rs 60 per equity share discount for policyholders and a Rs 45 discount for employees and retail investors. The share allotment is likely to be done on May 12 and its listing will take place on May 17.
The IPO is expected to garner up to Rs 21,000 crore. Its valuation stands at Rs 6,00,000 crore, which is 1.11 times the embedded value of around Rs 5,40,000 crore. A bidder can invest in a minimum of one lot comprising 15 shares, and in multiples of 15 thereafter with a maximum cap of 14 lots.
Retail investors will be able to participate in 35 per cent of the IPO size, while 10 per cent of the IPO shares will be reserved for policyholders. Qualified institutional buyers will have access to 50 per cent of the shares. The remaining five per cent is reserved for non-institutional buyers.