Even though the LIC initial public offering is scheduled to begin next week, the much-anticipated offering has always been in the spotlight due to its sheer magnitude and the company’s massive market position in the life insurance category. While the majority of experts have assigned the issue a’subscribe’ rating, others are cautioning investors about potential hazards before investing in the IPO.
Samco Securities, Religare Broking, Anand Rathi, and Marwadi Financial Services have all given the state-owned insurance behemoth’s initial public offering a’subscribe’ grade. However, investors should bear a few cautions in mind.
The Life Insurance Corporation (LIC) does not have a strong internet presence, and the company sells almost all of its insurance through agents. Individual renewal premiums are collected online for only 36% of individuals, compared to over 90% for private players, according to the company’s draught papers. According to analysts, if this tendency continues, the total cost of LIC is anticipated to climb in the future.
In comparison to its private sector peers, LIC’s value of new business (VNB) margin is low. As of September 2021, the state-owned insurer’s VNB was 9.9 percent, while counterparts ICICI Prudential Life, HDFC Life, SBI Life, Bajaj Allianz Life, and Max Life reported VNB margins ranging from 11 to 27%.
In terms of overall life insurance premiums, Life Insurance Corporation has a market share of 64%. It has, however, been losing market share to private competitors. Between 2015-16 and 2020-21, the state-owned insurer expanded at a compound annual growth rate (CAGR) of 9%, while private insurers expanded at an 18% CAGR.
The initial public offering, which will begin on May 4 and run till May 9, will have a price band of Rs 902-Rs 949 per equity share. It would provide policyholders a discount of Rs 60 per equity share and workers and retail investors a discount of Rs 45 per equity share. The company’s share allotment is expected to take place on May 12 and its listing on May 17.
The initial public offering is likely to raise up to Rs 21,000 crore. It is valued at Rs 6,00,000 crore, or 1.11 times the embedded value of around Rs 5,40,000 crore. A bidder may purchase a minimum of one lot, consisting of fifteen shares, and in multiples of fifteen thereafter, up to a maximum of fourteen lots.
Retail investors will be able to participate in 35% of the IPO, while policyholders will receive 10% of the IPO shares. 50% of the shares will be available to qualified institutional buyers. The remaining 5% is set aside for non-institutional purchasers.