LIC IPO: what is the price of the IPO?
LIC on Wednesday set its IPO, the largest in capital market history despite a downsizing, at 902-949 rupees per share. LIC offered a rebate of Rs 60 for policyholders and Rs 45 for retail investors and employees. The IPO will open on May 4 and close on May 9.
The government will sell 22.13 crores of shares through the offering. The anchor book will open on May 2 and the issue will open to retail investors two days later. Investors can bid in multiples of 15 shares. The size of the IPO was reduced from Rs 65,000 crore to Rs 21,000 crore as the Russian invasion of Ukraine and the sales supported by foreign portfolio investors (a net amount of Rs 1,48,078 crore since the beginning of December 2021) have affected the stock markets.
How should investors view the issue?
A few top mutual fund managers said the reduction in valuation made the issue attractive. “While there is a lot of inherent strength in the business and there are prospects for growth, valuations also look good now after the revisions. As the market is not witnessing a mad bull run which has been seen over the past year, investors may not see immediate listing gains, but it will generate decent returns over the next three to four years,” a fund manager said. leading.
“There is a lot of strength in the company. There are many categories where LIC does not have a commercial presence, so there are many opportunities for it to explore and grow. As LIC had a monopoly, one can only lose market share from such a position. It is however important to note that the company still maintains a market share of around 60% and could be a good company to invest with a medium to long term view,” said another fund manager.
Some see listing as part of the government’s strategic vision to create long-term shareholder value. “Our view is that we will not be able to determine the true value in the case of LIC, as it is a very large entity on its own. There are two ways of looking at it: the first in the present case where everyone buys policies to protect themselves from uncertainties… the second, because of the enormous purchasing power in the hands of consumers, the margins could decrease. One can underwrite with a long-term perspective,” said Manoj Dalmia, Founder and Director of Proficient Equities Limited.
How does the valuation compare to that of other insurers?
Yash Gupta, analyst at Angel One Ltd, said that at the supply range level, the IPO is valued at a price/integrated value (P/EV) of 1.06-1.1 on its September 2021 EV of Rs 539,686 crore, which is at a significant level. discount to P/EV for listed private life insurers. HDFC Life Insurance is trading at a P/EV of 3.9, SBI Life at 3.2 and ICICI Pru Life at 2.5 on their respective December 21 EV.
“While LIC’s valuations appear to be cheap relative to privately listed players, investors should keep in mind that LIC has a 9.9% lower VNB (value of new business) margin during the year. 2021 compared to private players who have VNB margins of 22-27% due to a higher share of group participation and products.Despite lower margins and a lower business mix, we believe the IPO is priced reasonably and provides value for investors with a long-term view,” Gupta said.
However, there is a part of the market that is not entirely convinced by the valuation. “Continued stock market volatility due to the Russian-Ukrainian war forced the government to reduce the size of the issue to 3.5%. However, the price range is kept on the higher side, which is not an attractive price for adequate yield growth. We recommend investors subscribe to listing day gains and wait for lower levels for long-term investments,” said Ravi Singh, Vice President and Head of Research, ShareIndia.
Tuhin Kanta Pandey, Secretary of the Department of Investment and Public Assets Management, said, “This is a fair and attractive valuation… We want to champion LIC as a long-term value creator on stock markets. He said the issue was the right size given the capital market environment and would not crowd out the supply of capital and money, even under current constraints.
What is the size of the LIC?
LIC, formed by the merger and nationalization of 245 private life insurance companies on September 1, 1956, with an initial capital of Rs 5 crore, now manages around Rs 40 lakh crore in assets. It is the fifth largest life insurer in the world and the country’s largest asset manager. As of December 31, 2021, it covered 91% of all municipalities and had 1.33 million individual agents, and held a market share of 61.6% in terms of premiums or GWP, 61.4% in terms of of New Business Premium, 71.8% in terms of the number of individual policies issued and 88.8% in terms of the number of group policies.
What are the benefits of SEO?
The profile of LIC will be improved. Investors can trade its shares or hold them for the long term. LIC will become more transparent and accountable to shareholders for any mismanagement. It will have to follow stock exchange listing guidelines and SEBI regulations.
While Pandey has ruled out a follow-up issue in the current fiscal year, markets are expecting more offers in the next fiscal year. Moreover, the insurtech industry will benefit. “Most public insurers in the country were still evaluating digitalization of customer journeys, which will get a boost after LIC’s IPO,” said Surjendu Kuila, co-founder and CEO of Zopper.
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