India’s Largest Ever IPO Of LIC Opens With Initial Interest From Retail Investors, Employees And Policy Holders
The largest initial public offering (IPO) ever for the Indian market, the LIC IPO, was 36% subscribed by 13:12 hours IST on May 4, the first day of launch.
In the initial round of purchasing shares of the insurance company, the lead was taken by LIC policyholders as they subscribed 1.24 folds the number of shares that were set aside for them. The subscription rate for the shares set aside for company employees has been subscribed at 64%, while the retail investor portion has a 39% subscription rate.
Non-institutional investors or qualified institutional buyers have purchased 8% of their allotment, while eligible institutional buyers have purchased 6,585 shares out of a total of 3.95 crore shares. For the LIC to get the entire IPO to sail through, the qualified institutional buyers have to subscribe to at least 90% of the reserved number of shares.
The LIC’s Rs 20,557 crore IPO opened for subscription on Wednesday, May 4, and will be open until Monday, May 9. The company plans to sell its stock in Rs 902-949 per equity share, with a minimum bid of 15 shares and subsequent multiples.
“On the upper price band of Rs 949 and the embedded value (EV) per share of Rs 853 for 9MFY21, the price-to-EV ratio works out to be 1.1x. While the industry P/EV is at ~2.5x. We believe the valuation for LIC is reasonable, keeping in mind the valuations at which the peers are trading and the average industry. The discount in the multiple for LIC could be considering its current dependence on the traditional product segment, lower VNB margins, higher employee expense, and agency distribution mix compared to its private peers,” said Motilal Oswal.
The brokerage firm anticipates the company concentrating on maintaining its strong growth momentum by gaining market share and focusing more on underwriting quality and the high-margin product mix.
“Given the growth prospects for the pension/ annuity segment and the company’s position as the market leader in the insurance sector, the company’s valuation will be at par with the private peers.”
Individual agents, bancassurance partners, alternate channels (corporate agents, brokers, and insurance marketing firms), digital sales (through a portal on the Corporation’s website), Micro Insurance agents, and Point of Sales Persons-Life Insurance scheme make up LIC’s omnichannel distribution system for individual products.
According to Hem Securities, LIC had the strongest individual product distribution network in India on September 30, 2021, with 1.34 million individual agents, 72 bancassurance partners, 174 alternate channels, 3,463 active Micro Insurance agents, and 4,400 Point of Sales Persons-Life Insurance scheme.
However, participating products and single premium products account for a significant portion of the Corporation’s total new business premiums, and any regulatory changes or market developments that negatively impact sales of such products could have a material adverse effect on the company’s business, financial condition, results of operations, and cash flows, according to Hem Securities.