LIC IPO set to be the biggest at Rs. 80,000cr

Financials of LIC

Net premium income - Rs. 4,02,844.34 cr Total revenue - Rs. 6,82,204.99 cr Net profit - Rs.2,900.56 cr Conservation ratio - 84.48% Solvency ratio - 1.76

- Sebi approval likely in March

- Face value is Rs10

- Share would be priced at Rs2,350

- 5% of issue can be reserved for employees

- 10% for policyholders

- LIC share capital was raised from Rs100 cr to Rs 6,325 cr in Sept 2021

- Share capital enhancement will help facilitate IPO

Mumbai: Life Insurance Corporation of India (LIC), India's largest life insurer with a market share of 64.1 percent in terms of premium, filed its draft red herring prospectus (DRHP) for an initial public offering (IPO) on Sunday.

The issue with a face value of Rs10 each per equity shares will be a comprehensive offer-for-sale (OFS) of up to 316,249,885 equity shares by the President of India through the Ministry of Finance, Government of India. The offer also includes not more than five per cent reservation

for its eligible employees and not more than 10 per cent for its policyholders.

It can be termed as India's biggest ever public offering, as through sale of five per cent stake by the government the estimated size of the IPO is likely to be more than Rs80,000 crore.

The initial public offering in the form of offer for sale of over 31.6 crore shares or five per cent government stake is likely to hit the market in March. The Corporation's employees and policy holders would get a discount over the floor price.

As per DRHP, LIC's embedded value, which is a measure of the consolidated shareholders value in an insurance company, has been pegged at about Rs5.39 lakh crore as of September 30, by international actuarial and consulting firm Milliman Advisors.

Although the DRHP does not disclose the market valuation of LIC, as per industry standards it would about 3 times the embedded value or around Rs 16 lakh crore. "The DRHP of LIC IPO has been filed today with the SEBI. For filing valuation about 31.6 crore shares are on offer representing 5 per cent equity," Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey tweeted. Merchant banking sources said the government is expecting to garner up to over Rs 80,000 crore from the IPO. The IPO is offer for sale (OFS) by the Government of India (GoI) and no fresh issue of shares by Life Insurance Corporation (LIC). The government holds 100 per cent stake or over 632.49 crore shares in LIC. The face value of shares is Rs 10 apiece. Once listed, LIC's market valuation would be comparable to top companies like RIL and TCS. So far, the amount mobilised from IPO of Paytm last year was the largest ever at Rs18,300 crore, followed by Coal India (2010) at nearly Rs15,500 crore and Reliance Power (2008) at Rs 11,700 crore.

"LIC has 66 per cent market share in new business premiums with 28.3 crore policies and 13 lakh agents as of March 31, 2021," Pandey added. As per norms, up to 5 per cent of issue size can be reserved for employees and up to 10 per cent for policyholders. Though the government is yet to clarify on the issue.

The filing of LIC DRHP was marginally delayed and done on Sunday evening.

Talking to Bizz Buzz, Arun Kejriwal, market expert, says, "the embedded value is Rs5.40 lakh crore and if one takes 2.5 to 3 times the proposed valuation of the company it would be in the region of Rs13.5 lakh crore to Rs16.2 lakh crore. Taking a midway price of this value, the share would be priced around Rs2,350. This is for a Rs 10 paid up share and would compare with HDFC Life, SBI Life and ICICI Prudential who are all Rs 10 paid up shares."

The company has 28.53 billion policies in force. It issued 21 million policies in the last fiscal. It has a total AUM of Rs39.74 trillion, which is more than three times the total of all other Life Insurance players put together. This AUM of LIC is 1.1 times the AUM of the entire mutual fund industry. Trying to gauge the issue size in Rs it would be around Rs70,000-75,000 crs for 5 per cent of the company, he added.

Subject to SEBI approval in time, the IPO of LIC is expected by March and the proceeds would be crucial to meet the revised disinvestment target of Rs78,000 crore in the current fiscal. So far, the government has raised Rs12,030 crore through CPSE disinvestment and Air India strategic sale this fiscal.

LIC share capital was raised from Rs100 crore to Rs 6,325 crore during September last year to help facilitate IPO.

Last month, LIC reported a profit after tax of Rs 1,437 crore for the first half of the financial year 2021-22 as compared with Rs 6.14 crore in the year-ago period.

Its new business premium growth rate stood at 554.1 per cent in the first half of 2021-22, compared with 394.76 per cent during the year-ago period.

"The most important factor for our market will be crude & LIC IPO which will be hogging the limelight. So, I wouldn't be surprised if we get wild moves on both sides based on News flow through the week," says Avinash G, head (research), Profitmart Securities.

At present, 24 life insurance companies in India, with LIC being the sole state-run player. The size of the Indian life insurance industry was Rs 6.2 lakh crore on a total-premium basis in fiscal 2021, up from Rs 5.7 lakh crore in fiscal 2020.

The government has appointed 10 merchant bankers, including Kotak Mahindra Capital, Goldman Sachs (India) Securities Pvt Ltd, Citigroup Global Markets India Pvt Ltd and Nomura Financial Advisory and Securities (India) Pvt Ltd, to manage the mega IPO of the country's largest insurer.

The government is also mulling allowing foreign investors to pick up stake in LIC. As per Sebi rules, foreign portfolio investors (FPI) are permitted to buy shares in a public offer.FDI policy would have to be tweaked for FII/FPI investment in this IPO, as LIC is a corporation and not an insurance company.