LIC IPO Value Reduced; Still India’s Biggest-Ever IPO; What Investors Should Know

DIPAM Secretary Tuhin Kanta Pandey stated on Wednesday that the Life Insurance Corporation’s valuation is “fair and attractive,” adding that the government expects a large number of individual investors to participate in the LIC IPO. The eagerly anticipated initial public offering (IPO) will begin on May 4 and end on May 9.

Due to the current market conditions, the government has reduced the issue size from 5% to 3.50%. Furthermore, the issue’s price has been reduced. The company is now valued at Rs 6 lakh crore at the highest end of the price band, compared to earlier estimated appraisals of over Rs 10 lakh crore.

LIC’s initial public offering (IPO) is worth Rs 21,000 crore, valuing the insurer at Rs 6 lakh crore. For the first time, the state-owned insurer has revealed its embedded value (EV), which is estimated to be around Rs 5.4 lakh crore. The sum of the current value of future profits and adjusted net asset value is the embedded value. It’s comparable to book value, but it’s adjusted for future contingencies and cash flows.” While LIC valuations appear to be inexpensive when compared to publicly traded private companies, investors should keep in mind that LIC has a lower VBN (value of new business) margin of 9.9% in FY2021 than private companies, which have VNB margins of 22-27 percent due to a higher proportion of participation.

The LIC IPO is valued at a price-embedded value of 1.06-1.1 times its September 2021 EV of Rs 5,39,686 crore at the offer band, which is a significant discount to listed private life insurance companies, which trade at a price-embedded value of 2.5-3.9x their December 2021 EV. While HDFC Life Insurance has a P/EV of 3.9x, SBI Life and ICICI Prudential Life have a P/EV of 3.2x and 2.5x, respectively, their December 2021 embedded value, according to Gupta.
“The LIC IPO will not suffocate the market’s capital and monetary supply.” Given the market limits, the initial public offering is appropriately scaled. The government has a long-term commitment to list LIC on the stock exchange, and listing LIC is part of the government’s long-term strategic strategy.” DIPAM Secretary Pandey said during a press conference on Wednesday. DIPAM stands for the Department of Investment and Public Asset Management.

Even with the lower size of Rs 21,000 crore, the LIC IPO will remain the country’s largest initial public offering. Paytm’s IPO, which is expected to raise Rs 18,300 crore in 2021, is the largest so far, followed by Coal India Ltd’s IPO of Rs 15,500 crore in 2010 and Reliance Power’s IPO of Rs 11,700 crore in 2008.

For the public offering, the insurance behemoth has set a price band of Rs 902-949 per share. The government is selling 3.5 percent of its LIC holdings. During the offer, about 21,000 crore shares of the firm would be available for purchase. As a result of the Russia-Ukraine conflict, the population has shrunk dramatically.

According to the red herring prospectus, a considerable chunk of the impending LIC IPO, up to 22,137,492 equity shares or 10% of the offer, has been set aside for LIC policyholders (RHP). For eligible employees, up to 1,581,249 equity shares, or 0.70 percent of the offer, have been set aside.