Life Insurance Corporation of India (LIC), the country’s largest life cover provider, will launch its initial public offer (IPO) – the biggest in the history of the Indian capital market – tomorrow.
Here are 10 things to know before subscribing to the public issue
- IPO Dates
The offer will open for subscription on May 4 (Wednesday) and the last day to subscribe to the IPO is May 9 (Monday).
2. Price Band
The price band for the offer has been fixed at Rs 902-949 per equity share of face value Rs 10 each. However, LIC would offer a discount of Rs 60 to its eligible policyholders while a discount of Rs 45 will be offered to retail investors and employees.
- Offer details
The government of India is aiming to garner Rs 21,000 crore at the upper end of the price band by liquidating 3.5 percent of its stake in the insurance behemoth. The IPO is entirely an offer-for-sale of 221,374,920 equity shares by the government, which will receive the entire proceeds from the IPO. Out of the shares on the block, up to 1,581,249 units are reserved for employees and up to 22,137,492 are reserved for the policyholders.
Of the total offer size, 50 percent of the net offer will be reserved for qualified institutional buyers, 35 percent for retail investors, and the remaining 15 percent for non-institutional investors.
The stake of the Government of India in the corporation will come to down to 96.5 percent after the offer from the present holding of 100 percent.
- Objectives of the issue
The objectives of the issue are to achieve the benefits of listing the equity shares on the stock exchange and to carry out an offer-for-sale of 221,374,920 shares by selling shareholders.
- Lot sizes
Investors can bid for a minimum lot size of 15 shares and in multiples thereof. A retail investor can apply for up to 14 lots or 210 shares for an amount of Rs 1,99,290. The maximum bid amount for retail investors, LIC employees and LIC policyholders has been capped at Rs 2 lakh.
- Company profile and the industry
LIC is the largest life insurer in India across the parameters of GWP (gross written premium), NBP (new business premium), number of individual policies issued, and the number of group policies issued. It has a market share of 61.4 percent in NBP (individual and group), compared to the nearest competitor, which has a market share of 9.16 percent on an NBP basis (individual and group).
It is ranked fifth globally by life insurance GWP and 10th globally in terms of total assets. As at December 31, 2021, LIC had 2,048 branch offices and 1,559 satellite offices in India, covering 91 percent of all districts in the country. LIC has over 13.5 lakh agents who brings most of the new business.
LIC manages assets worth more than Rs 40 lakh crore, which is greater than the entire mutual fund industry combined. It invests these funds across stocks and bonds and owns 4 percent of all listed stocks in India and more government bonds than the RBI.
Based on life insurance premium, India is the tenth largest life insurance market in the world and the fifth largest in Asia, as per Swiss Re’s sigma No 3/2021 report for July 2021. It is forecast that the total premium for life insurers will average a 14-15 percent annual growth over the next five years. At this level of premium, life insurance as a proportion of GDP is projected to reach 3.8 percent by FY26, up from 3.2 percent in FY21. NBP is expected to record a CAGR of 17-18 percent during the same period.
At the end of FY21, LIC had assets under management of Rs 37,46,404.47 crore, a growth of 10 percent from the AUM of Rs 34,14,174.57 crore a year back. During this period, the net profit jumped to Rs 2,974.14 crore from Rs 2,710.48 crore. For the period ended December 31, 2021, LIC had a total AUM of Rs 40,90,786.78 crore and reported a net profit of Rs 1,715.31 crore.
- Strengths and business strategy
LIC’s key strengths lie in the fact that it is the fifth largest life insurer globally by GWP and the largest player in the fast-growing and underpenetrated Indian life insurance sector. It is a trusted brand and has a customer-centric business model; it has strong presence across India through an omni-channel distribution network with an unparalleled agency force; it is the largest asset manager in India with an established track record of financial performance, profitable growth and has a robust risk management framework.
Its key business strategy is to capitalise on the growth opportunities in the Indian life insurance sector and further diversify the product mix by increasing the contribution of the non-participating portfolio. It aims to further reinforce its omni-channel distribution network and increase its productivity while continuing to leverage technology to aid growth, drive operating efficiencies and provide digital support.
- Things to worry
LIC has been consistently losing market share to private peers. Currently, LIC holds 64 percent market share in terms of total life insurance premium. It averaged a compounded annual growth rate (CAGR) of 9 percent during FY16-21, while private insurers grew at 18 percent.
The government will remain the largest shareholder and key manager even after the IPO. Thus, any future government intervention might be detrimental to shareholders.
LIC doesn’t have a strong digital presence and 90 percent of its policies are sold by agents. If this trend continues, then the total cost is likely to increase for LIC, going forward.
LIC is also sitting on a mark-to-market (MTM) loss of Rs 6,028 crore. LIC said in its draft papers that of the Rs 11,265 crore worth of debt papers of mispriced insurance policies, papers worth Rs 5,351 crore are non-performing assets (NPAs) for which full provisioning has been done at an amortised cost, and if this transaction is shown in the balance sheet, LIC would have to show a loss of Rs 6,028 crore.
- Grey market premium, allotment and listing date
The company’s shares are currently commanding a premium of Rs 85 per share in the grey market, according to IPO Watch implying a listing gain of 10 percent.
Shares will be allotted to successful bidders on May 12, and the refund to unsuccessful bidders will be credited their accounts on May 13. Shares will be credited to the demat account of the successful bidders by May 16 and the stock will debut on the bourses on May 17.
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