Should You Invest in LIC IPO?

Padmaja Choudhury   /   May 4, 2022

Here are the things you should keep in mind before investing in the LIC IPO.

It will be the first time that the insurance giant Life Insurance Corporation (LIC) of India has gone public. LIC IPO opened today on 4th May 2022. The Government of India has set the LIC IPO price range at 902 to 949 for every equity share. LIC IPO for policyholders is available at an Rs.60 discount, and LIC employees will get a 45 discount on the LIC IPO share price if they apply for the public sale. LIC IPO date in 2022 will be open until 9th May 2022

This article will help you decide whether you should invest in the LIC IPO.

Few pointers on LIC

  • On 1st September 1956, LIC was formed by the merger of 245 private life insurance firms.
  • It is a government-owned insurance firm that was India’s only life insurance company until the government allowed private insurance companies to enter the market in 2000.
  • It is the world’s fifth-largest life insurance business by Gross Written Premium (GWP) and the tenth-largest life insurance company by total assets.
  • It has 2,048 branches, 113 divisional offices, 8 zonal offices, and 1,554 satellite offices in 14 countries throughout the world.
  • Fiji, Mauritius, Bangladesh, Nepal, Singapore, Sri Lanka, the United Arab Emirates, Bahrain, Qatar, Kuwait, and the United Kingdom are among the countries where it operates.
  • It accounts for 74.6 percent of all individual life insurance policies written in India each year, with over 290 million active life insurance policies.

LIC IPO details

LIC IPO date 2022:

The public offering will begin on 4th May 2022 and will be up for bidding until 9th May 2022.

LIC IPO share price:

The Government of India has set the LIC IPO price range at 902 to 949 rupees per share.

LIC IPO size:

The Government of India expects to raise Rs 21,008.48 crore from the LIC IPO.

LIC IPO lot size:

 Applicants will be able to apply in lots, with each lot consisting of 15 shares of LIC.

IPO application limit:

A single buyer can apply for a minimum of one lot and a maximum of fourteen lots.

Factors that impact the LIC IPO

Here are some factors you need to look at before investing in LIC IPO.

Growth potential

In India, life insurance is primarily promoted as a savings product with a significant investment component built into the premium. As a result, the actual growth opportunity for insurers may be in selling attractive pure term and annuity policies to investors while encouraging those who already have life insurance to increase their coverage.

Over the next five years, growth projections for the sector may be as high as 14-15% and for LIC as high as 9-10%.

When Covid struck, Indian life insurers saw rapid expansion. From FY16 to FY20, total premium grew at a 12% CAGR, while New Business Premium (NBP) grew at a 17% CAGR. However, once Covid began selling operations, growth rates slowed to 7-7.5% in FY21.

As LIC gets two times the premium collected by all private players combined, its growth rates have typically been lower than those of the private companies. Its NBP increased by 13.5% from FY16 to FY21, compared to 18% for other insurance companies.

Market share

In the five years from FY16 to FY21, LIC has slowly lost market share to private firms. The table below shows that LIC has lost more market share in the individual business than in the group business, which it still controls.

Individual business is acquired through a mix of channels, including individual agents, banks (bancassurance), brokers, and so on, while group insurance is sold directly by companies. 

lic ipo

Source: PrimeInvestor

LIC will need to establish itself in the bancassurance and digital channels to attract new consumers in the long run. It has taken some moves in this approach by partnering with Policybazaar, but the benefits may take some time to materialise.

To grow in the insurance industry, it needs a lot of money. With just a small amount of stock from its promoter and a lot of help from policyholder funds, LIC has developed its franchise to its current massive scale. This is not a path those private players may follow. As a result, LIC’s scale advantage is expected to last long, while obtaining funding for future expansion will be more difficult.

Investment performance

LIC’s investment decisions are frequently in the headlines for all the wrong reasons. 

However, given the large magnitude of LIC’s accumulated float, these inefficient investing actions don’t substantially impact the company’s overall investment performance.

With Rs 40.1 lakh crore in assets, LIC controlled 3.2 times the assets of all private life insurers combined in December 2021 and had more than 15 times the assets of the second-largest company. Problem sectors, including poor loans and ‘other investments’, account for a minor percentage of LIC’s portfolio.

Valuations

Overall, LIC is expected to continue to benefit from its dominating and impregnable market position, difficult-to-replicate distribution reach, strong brand recall and confidence (because of sovereign support for its policies), and the stability that comes with a significant asset base. However, in terms of growth and profits, it is likely to fall behind private players.

Here’s what the brokerage houses have to say about the LIC IPO:

Reliance Securities

The advice from Reliance Securities is to “subscribe.” According to  the report, the IPO was priced at a fraction of the price of private life insurance companies. LIC is well-positioned due to its multichannel distribution network, which comprises 1.33 million agents, partners, and alternate channels. In addition, the corporation has a solid financial track record.

Angel One

The IPO has received a ‘subscribe’ rating from Angel One. LIC’s market share loss in the individual insurance industry and historically lower earnings are worries, but the brokerage believes that valuations explain most of the problems.

Profits are expected to climb from current low levels in the coming years as the product mix improves and excess is transferred to shareholders’ accounts, which gives investors confidence when paired with cheap valuations.

Furthermore, a 45% discount for retail investors and a 60 percent discount for LIC policyholders make the IPO more tempting to them.

Geojit Financial Services

Geojit Financial has given it a ‘short to medium term subscribe rating.’ Despite downside risks such as declining market share, lower short-term persistency ratios, and sub-par margins that demand a discount to private players, the current valuation is appealing due to its strong market position and enhanced earnings per share due to changes in surplus distribution norms, and strong sector growth outlook.

Choice Broking

The IPO has been granted a ‘subscribe’ recommendation by Choice Broking. LIC has 13.3 lakh individual agents, accounting for 55% of the total agent network in India.

Ventura Securities

The issue gets a ‘subscribe’ rating from Ventura Securities. LIC operates internationally and has 2,048 branches, 113 divisional offices, and 1,554 satellite offices around the country. The business offers both insurance and investing services. At this premium level, life insurance as a proportion of GDP is predicted to reach 3.8% by FY26, up from 3.2 percent in FY21.#lic #ipo

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