Even though LIC’s IPO is set to hit the market next week, the long-awaited offering has always been in the spotlight due to its size and the huge market share of the company in the life insurance segment. Although most analysts gave the show a “subscription” rating, some also warn them of the pitfalls before investing in the IPO.
Samco Securities, Religare Broking, Anand Rathi and Marwadi Financial Services gave the state-owned insurance giant’s IPO a “subscribe” rating. However, there are a few points of caution investors should 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% of individual renewal bonuses are collected digitally, compared to more than 90% for private players. Analysts have said that if this trend continues, the total cost of LIC is expected to increase in the future.
LIC’s New Business Value (NBV) margin is low compared to its private sector peers. The public insurer’s VNB in September 2021 stood at 9.9%, while its peers ICICI Prudential Life, HDFC Life, SBI Life, Bajaj Allianz Life and Max Life reported a VNB margin of between 11 and 27 %.
Life Insurance Corporation holds a 64% market share in terms of total life insurance premiums. However, it lost market share to its private peers. Public insurer grew at a compound annual growth rate (CAGR) of 9% between 2015-16 and 2020-21, while private insurers grew by 18% over the same period.
LIC IPO: date, size, quota
The initial public offering, which will open to the public and policyholders on May 4 and run until May 9, has a price range of Rs 902-Rs 949 per share. It will have a discount of Rs 60 per share for policyholders and a discount of Rs 45 for employees and retail investors. The allocation of the shares should take place on May 12 and its listing will take place on May 17.
The IPO is expected to fetch up to Rs 21,000 crore. Its valuation stands at Rs 6,00,000 crore, which is 1.11 times the intrinsic value of around Rs 5,40,000 crore. A bidder can invest in a minimum of a lot composed of 15 shares, then in multiples of 15 with a maximum ceiling of 14 lots.
Retail investors will be able to participate in 35% of the IPO size, while 10% of the IPO shares will be reserved for policyholders. Qualified institutional buyers will have access to 50% of the shares. The remaining five percent is reserved for non-institutional buyers.
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