The long awaited LIC IPO is finally hitting the market. With LIC IPO, the government plans to dilute 3.5% of its stake in LIC to raise Rs 21,000 crore from the market. The issue size has been trimmed to 3.5% of equity compared to 5.0% as proposed earlier. LIC has been valued at Rs 6 lakh crore at upper price band. Post the IPO and listing, LIC will be India’s fifth most valuable firm ahead of Hindustan Unilever and ICICI Bank, and slightly below Infosys. Despite the reduced size, LIC’s IPO will be India’s biggest ever, surpassing the Rs 18,300 crore IPO by One97 Communications (Paytm).

Issue OpensWednesday, 4th May, 2022
Issue ClosesMonday, 9th May, 2022
Anchor Issue  2nd May 2022
Issue DetailsOffer for Sale of upto 221,374,920 Equity Shares
Net Issue Size (ex policy & emp quota)19,76,56,179
Face Value₹ 10/- Per Share
Issue Size -Net (₹ Cr)₹ 19,517 – 20,557 Cr
Bid Lot15 shares and in multiple thereof
Price Band₹ 902 – 949
Employee Reservation1,581,249 Equity Shares 
Policyholders Reservations22,137,492 Equity Shares
Retail and Employee Discount₹ 45/- Per Share
Policyholders Discount₹ 60/- Per Share
Issue Structure : 
QIB50% of the net offer
NIB15% of the net offer (  29,648,427 Shares  2,814 Cr)
Retail35% of the net offer (69,179,663 Shares, 6,254 Cr)
Appl. for 1x Retail~ 46 Lacs
RegistrarKFin Technologies Ltd.

About Life Insurance Corporation of India

  • Life Insurance Corporation of India (“LIC”) was established on September 1, 1956, by merging and nationalizing 245 private life insurance companies in India.
  • Till the year 2000, it was the only life insurer in the country.
  • LIC has been providing life insurance in India for more than 65 years and is the largest life insurer in India, with
    • 61.6% market share in terms of premiums (GWP)
    • 61.4% market share in terms of New Business Premium (NBP)
    • 71.8% market share in terms of number of individual policies issued
    • 88.8% market share in terms of number of group policies issued for Fiscal 2021.
  • LIC number of individual agents, comprised 55% of all individual agents in India as at December 31, 2021.
  • LIC enjoys a very high gap in market share by life insurance GWP relative to the 2nd largest life insurer in India.
  • LIC is ranked 5th globally by life insurance GWP (comparing the LIC’s life insurance premium for Fiscal 2021 to the global peers’ life insurance premium for 2020) and 10th globally in terms of total assets (comparing the LIC’s assets as at March 31, 2021 with other life insurers’ assets as at December 31, 2020).
  • LIC is the largest asset manager in India as at December 31, 2021 with AUM of ₹40.1 trillion, on a standalone basis which is 1.1 times the entire Indian mutual fund industry’s AUM.
  • LIC is ranked 5th globally by life insurance GWP (comparing the LIC’s life insurance premium for Fiscal 2021 to the global peers’ life insurance premium for 2020) and 10th globally in terms of total assets (comparing the LIC’s assets as at March 31, 2021 with other life insurers’ assets as at December 31, 2020).
  • LIC is the largest asset manager in India as at December 31, 2021 with AUM of ₹40.1 trillion, on a standalone basis which is 1.1 times the entire Indian mutual fund industry’s AUM.
  • LIC operates through 2048 branches, 113 divisional offices, and 1,554 satellite offices. LIC also operates in countries in Fiji, Mauritius, Bangladesh, Nepal, Singapore, Sri Lanka, UAE, Bahrain, Qatar, Kuwait, and UK.

Anchor Investors

  • LIC raised a total of Rs 5,627 crore in anchor book. There was muted demand from overseas funds with just Rs 1,624 crore investment in anchor book. among foreign funds, the Singapore government’s sovereign wealth fund (GIC) subscribed to shares worth over Rs 400 crore through three of its funds and BNP Investments subscribed to shares worth nearly Rs 450 crore.
  • 71% of the total allocation was done to 15 domestic mutual funds through 99 schemes. SBI Mutual Fund subscribed to shares worth over Rs 1,000 crore . ICICI Pru MF subscribed to shares worth over Rs 700 crore and HDFC MF subscribed to shares worth over Rs 650 crore. Other MFs included Aditya Birla Sun Life MF and Axis MF as major subscribers among domestic fund houses. Other anchor investors include ICICI Prudential Life Insurance, SBI Life Insurance, Kotak Mahindra Life Insurance, PNB Metlife Insurance, SBI Pension Fund and UTI Retirement Solutions Pension Fund etc.

Salient Points

  • During the formation of LIC in 1956, the government had infused Rs 5 crore as seed capital
  • Even after the LIC IPO, the government’s sovereign cover will continue under Section 37 of the LIC Act.
  • With the largest market leadership in the life insurance market in India, it has Rs 40 lakh crore as assets under management (AUM) and reserves of Rs 30 lakh crore.
  • The post of LIC chairman will be in place till 2024, and then replaced by MD and CEO.
  • LIC Their policies address consumers’ needs through the four principal stages of life, namely, beginning of savings, career and marriage, family needs and retirement planning and retirement and asset drawdown.
  • They have a broad, diversified product portfolio covering various segments.
  • LIC individual product portfolio in India comprises 32 individual products (16 participating products and 16 non-participating products) and 7 individual optional rider benefits. Their group product portfolio comprises 11 group products.
  • Types of life insurance products, by product and customer types

LIC IPO: Financials

Item / ( Rs. in Crores)2021(09)2021 (12)2020 (12)2019 (12)
Premium Earned2,85,341.934,05,398.503,82,475.523,39,971.63
Income from Investments2,26,253.732,85,520.422,42,836.312,25,043.54
EBITDA1,756.972,980.352,718.522,642.37
Profit After Tax1,715.312,974.142,710.482,627.38
EPS – Basic & Diluted (₹ )2.714.74.294.15
RoNW (%)20.84%45.65%317.14%322.25%
Share Capital6,325.00100100100
FV10.00   
Reserves2,498.626,705.47891.66798.44
Net worth#8,230.506,514.64854.65815.33
NAV(₹ )13.0110.31.351.29
IPO Price949   
EPS ( FY21)4.70   
PE( based on Fy21)201.82   
EPS (FY22 ann)5.42   
PE (FY22 ann)175.09   
Market Cap (Rs. Cr)600243   

Concerns

  • H1FY22 VNB margin of LIC stood at 9.3 per cent, which are much lower than peers in private sector.
  • Some bank promoted players have better access to bancassurance channels.
  • Sector is subject to complex regulatory requirements and if they fail to comply with these regulatory requirements, their operations could be disrupted or they may become subject to significant penalties.
  • Faces challenges in reforming current work culture and decision making.
  • Govt Control may delay decision making.
  • Govt owned General insurance players have been losing market share, LIC may also end up on same road.
  • Changes in customer preference and ne ways of doing insurance like digital platforms.

Assessment

  • Based on life insurance premiums, India is the tenth largest life insurance market in the world and fifth largest in Asia.
  • LIC has a diverse portfolio of insurance and investment products to cater to the needs of individuals. LIC can be considered as part insurance and part investment products company.
  • Life insurance has been one of the fastest growing segments in India’s insurance market. It recorded a premium income of over ₹5.7 trillion in FY20. Out of this LIC wrote premiums that amounted to around ₹3.8 trillion.
  • As of 30th September 2021, LIC of India was India’s largest asset manager, with assets under management (AUM) of $39.55 trillion, more than 3.3 times the combined AUM of all private life insurers in India and the AUM was more than 1.1 times the AUM of the whole Indian mutual fund. This on December 31, 2021, rose to ₹40.1 trillion on a standalone basis.
  • 95.90% of LIC debt portfolio in India is invested in sovereign and AAA-rated debt as at December 31, 2021;
  • LIC’s investments in listed shares accounted for about 4% of NSE’s entire market capitalization as the end of September 21.
  • LIC is being Offred at a P/EVPS (Embedded Value Per Share) of 1.1x which is at a steep discount of 65% to the average valuation of more than 3 of other private life insurance firms in the country. Embedded value (EV) is a common valuation measure used by life insurance companies and is calculated by adding the present value of future profits of a firm to the net asset value (NAV) of the firm’s capital and surplus.
  • LIC is well placed to serve customers across all age brackets with comprehensive product portfolio. Its Customers in the age group 27 to 40 years accounted for ~42% of individual policies sold.
  • LICs cross-cyclical business mix is dominated by participating life insurance policies. While participating products will continue to be a strong focus, LIC intends to diversify the product mix by increasing sales of their existing non-participating products as well as launching new nonparticipating products, in particular term insurance, health insurance, pension/annuity products and ULIP products.
  • The company is well-placed owing to its omnichannel distribution network, with more than a million agents, several partners and alternate channels.
  • Given that the government is offloading only 3.5 per cent of its 100 per cent stake, the free float would be low which could create a demand-supply mismatch. The brokerage has raised concerns over loss in market share.
  • As of December 2021, LIC had a 61.4% market share in NBP (new Business premium). Due to its poor presence in ULIPs and pure protection products, it has been losing market share to the private insurers.
  • There are concerns with LIC wrt market share loss to private players, lower profitability and revenue growth, lower VNB margins and short term persistency ratios. To mitigate these, LIC plans to focus on protection products, non-par products, and linked products to improve its VNB margins in the future. Investors must be aware that the business of insurance is long term in nature.
  • Comparison with Peers
CompanyCMP/IPO
Price
FVTotal Premium (Cr) Net Worth (cr)Net Profit (cr)EPS P/E RONW%Embrdded Value  (Rs bl)Mrkt cap/ IEV
LIC949104,05,8506,514.642,974.144.720145.65%5,396.801.1
SBI Life11371050,25010,400.441,455.8514.5578.1614.00%3023.77
HDFC Life 5541038,5808,637.721,360.876.7482.3315.75%295.43.96
ICICI Pru Life5241035,7309,119.42956.166.6678.8110.48%3022.49
  • LIC has Highest RoNW amongst other listed players in India in the same industry. It is expected that LIC profitability will undergo a profound change.
  • The Changes in surplus distribution policy and bifurcation of funds is likely to have a profound effect on future profitability of LIC. Prior to September 30, 2021, LIC had only one fund – a participating fund. An amendment to the Life Insurance Corporation Act in Finance Act, 2021, notified on June 30, 2021, resulted in LIC having a participating fund and nonparticipating fund since September 30, 2021. so before this change LIC used to pays only 5% of the profits to the shareholders (govt) and 95% go to the policyholders. As of September 2021, LIC’s participatory fund was Rs 24.57 lakh crore and the non-participatory fund was Rs 11.37 lakh crore. This means the surplus generated on non-participatory fund ( about a third of the total funds) will solely now go entirely to the shareholders and not the policyholders. Further in accordance with new approved surplus distribution policy, the surplus in respect of the participating fund will be allocated between policyholders and shareholders in the ratio of 95:5 for Fiscal 2022, 92.5:7.5 for each of fiscal 2023 and fiscal 2024 and then 90:10 from fiscal 2025 onwards.
  • LIC IPO is valued at a discount to listed peers in the life insurance business. The discount in the multiple Market Cap / EV for LIC could be because of current dependence on traditional product segments, relatively lower VNB margins, higher employee expenses, distribution mix.
  • As per reports in social media, LIC share price has been continuous active in grey market and today it is reported to be at a premium of ₹50-70 and as per some reports it could be hovering around Rs. 55-60 as of now. In my opinion investors should steer clear of grey market.
  • I intend to apply in LIC IPO from a short to medium term perspective as the current valuation being offered is attractive considering its strong market presence, LIC perceived as a trusted name and likkely iprovement in profitability due to changes in surplus distribution norms as well as a favorable sector growth outlook..

Standard disclaimer:  I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering & Management . Also Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2)  Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors.  I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or  leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.

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