LIC IPO: The Wait Is Over

The wait is over, as Life Insurance Corporation (LIC) is all set to launch India’s biggest initial public offering (IPO) on 4 May (Wednesday). The issue will close on 9 May.

The state-owned insurer said that the government of India will be selling 3.5 per cent or 22.13 crore shares in the company to see its demand in the Indian stock market.

Prashanth Tapse, Research Analyst & VP Research, Mehta Equities said, "The much-awaited LIC IPO stands the largest in the history of the capital market despite a reduction in size. Considering the structural story in the Indian life insurance industry, remains intact as uncertainties during the Covid pandemic have highlighted the benefits of life insurance to all." 

LIC being India’s largest and top 5th globally the ask valuations to the insurance business is near 1-1.5 times the embedded value which is a healthy discount to listed private peers which are trading in 2-3 times to EV.

Investors Benefits

The 66-year-old company dominates India's insurance sector with more than 280 million policies. Therefore the IPO brings several benefits for its policyholders as well. LIC has fixed a price band of Rs 902-949 each share. The organisation has reported a discount of Rs 60 for each share for the policyholders, while the discount be Rs 45 for retail bidders.

The total issue size of LIC's IPO is 22.13 crore shares. Out of this, 10 per cent i.e. 2.21 crore shares are for policyholders. At the same time, 0.15 crore shares is for the employees. Apart from that, retail bidders have been assigned 35 per cent portions of the net issue.

As the IPO has two categories of investors - policyholders and retailers, both can put maximum bids of Rs 2 lakh. That is, those who apply under both categories can put a maximum bid of Rs 4 lakh.

Varun Sridhar, CEO, Paytm Money said, "The trust that LIC has built with the common man over the decades, a lot of these investors are expected to come from tier 2 and 3 towns."

Government's Revenue

LIC IPO is going to be a major lift to the government's income and would help in cutting down the deficit. The Centre therefore aims disinvestment of Rs 65,000 crore. While Rs 30,000 crore is targeted to raise from the estimated sale shares by the government.

"I believe the benefit is for both investors and government which is doing this for their commitment to meet the disinvestment target as well as sharing nation wealth with the people who have built this organisation. This way the government wants people to be part of building national wealth in the path of targeting the USD 5 trillion Indian economy in the next 3-5 years", Tapse said.

Overseas Funds

As the Union Cabinet has allowed up to 20 per cent Foreign Direct Investment (FDI) in Life Insurance Corporation of India under the automatic route, it can be expected to bring funds from overseas.

Under the current FDI policy, foreign investment can be up to 20 per cent in public sector banks through the routes decided by the government, hence the government decided to allow foreign investment up to 20 per cent in LIC and similar corporate bodies.

Prashanth Tapse on this says, "This is in continuing with its efforts of government to make India an attractive investment destination through FDI automatic route. Such reforms and amendments in FDI policy will further improve country rating in ease of doing business leading to larger FDI inflows and encourage investment. The reform will not only benefit LIC IPO but it will also open up a way for more disinvestment and help Govt requirements. It's like a Win-Win strategy for both."

To make it easier to raise capital, this type of FDI has been kept under the automatic route as in the insurance sector. The government has taken this decision because of the good response to the disinvestment of LIC.

Special Reserved Shares 

Out of the remaining shares after reservation of employees and policyholders, 50 per cent of shares is to be for Qualified Institutional Buyers (QIBs), 35 per cent for retail investors and 15 per cent for Non-Institutional Investors (NIIs). This stock is being viewed with a lot of hope.

This IPO is a first-of-its-kind move and a great offer by the Government of India to share wealth creating assets with special reservation for employees, policyholders as well as to small retail investors.

"It’s a great opportunity for Indian investors to Invest and own the largest financial institution in India, which manages around Rs 40 lakh crore of public money, equal to or more than Indian Mutual fund industry. This IPO reservation is likely to drive new investors to own India’s largest Insurer and 5th largest in the global insurance space and get the taste of equity growth advantage in the long run", Mehta Equities' Research Analyst, Prashanth Tapse stated further.

Hence the price band of the issue is cheaper for LIC employees, policyholders or retail investors as compared to QIBs and NIIs.

IPO and Demat Account

Those who want the subscription of the LIC IPO issue, must need a Dematerialisation (Demat) Account. SBI's YONO, Upstox and Paytm Money have facilitated customers to go ahead with demat accounts for subscribing and investing in the IPOs.

Paytm Money CEO, Varun Sridhar on this says, "With the LIC IPO, we believe that May will be a record month for demat account openings in recent times. It is a milestone event for Indian Capital markets and is expected to bring millions of new investors. We at Paytm Money are providing this opportunity as we have built one of the most robust and comprehensive trading and investment platforms in the country."

As known, LIC has mentioned the valuation of Rs 6 lakh crore for IPO. The issue was opened for the anchor investors on May 2nd which has been a major hit in the market. So for now, it has to be seen that how much profit margin does India's biggest and the most-awaited IPO makes in the market till May 9th.