LIC files DRHP; Government to sell 5% of its stake in LIC

Life insurance corporation, the most awaited IPO is finally here after filling its red herring prospectus with the market regulators SEBI.

It will be one of the biggest IPOs to hit, in the history of the Indian stock market. Lots of numbers and valuation of LIC and decisions on the same have delayed the LIC initial public offering, wait is finally getting over soon. The government is holding the entire 100% of the LIC accumulating to a total of 632.49 crore shares.

Facts on LIC

  • LIC ranks 5 the globally in terms of Premium
  • The giant insurance company ranks 10th globally in terms of assets.
  • It is the largest asset management company of Indi with Asset under management (AUM) of Rs 39.56 trillion on a standalone basis, which was more than 3.3 times the total AUM of all private life insurers in India.
  • This AUM is almost 1.1 times more than the total AUM of the Mutual fund industry.
  • The average ticket size of individual premium as of September 2021 stood at Rs 16,944.
  • As of March 2021, LIC has a 66% market share in new business premium with 283 million policies and 1.35 million agents.

Assets managed category wise

The gem company of the Indian Government, Life Insurance Corporation of India, manages assets worth Rs39.56 trillion which is approximately 18.5% of India’s annualized GDP for Fiscal 2022.

     Investment categorized as of September 2021

  • 37.45% of total Aum, i.e Rs14.81 trillion is invested in government securities.

This investment in FY21 was approximately around 37.83%, while in FY20 it was around 38.80%, of the total AUM

  • 24.77% of total AUM. i.e Rs 9.80 trillion is invested inequities.

Investment in equities in FY21 and FY20 was around 21.67% and 15.02% of Total AUM, respectively.

  • 24.6% of the total AUM is invested in state government securities.

In FY21 and FY20, the investment in state government securities was approximated at 26.16% and 24.62%, respectively.

  • 8.07% of the total AUM is invested in corporate bonds.

Equity share details

  • LIC- 100% owned by government comprising of 632.49 crores shares.
  • Face Value-Rs10
  • Equity Up for sale- 5% stake
  • No of shares to be sold under IPO-31.6 crores shares
  • Pricing- Book building Process
  • Price of a share- estimated to around Rs 2000

Valuation

Insurance companies are valued based on the embedded value (EV), however, the life insurance corporation of India has been exempted from the same to be revealed. The mammoth insurance company has been valued by the world’s largest provider of actuarial services, Milliman.

  • Embedded Value-5.4 lakh crores ( as of 31st September 2021).
  • Market Value- 16 Lakh crores(expected, as per industry standards)
  • Valuer- Milliman.

Lead Bankers

A total of 10 bankers have been appointed to lead the biggest IPO in the country, to raise approximately 63,000 crores.

  • Kotak Mahindra Capital
  • Axis Capital
  • Bofa Securities
  • CITI Group Global markets India,
  • Nomura Financial Advisory,
  • Goldman Sachs India Securities,
  • ICICI Securities,
  • JM Financial,
  • JP Morgan India
  • SBI Capital.

Registrar for the IPO is KFin Technologies Private Limited

The objective of the Offer

The IPO is an offer for the sale of 31.6 crore shares by the Government of India. LIC will not receive any proceeds from the share sale. As per the DRHP, the objectives of the IPO are:-

  • achieve the benefits of listing the Equity Shares on the Stock Exchanges;
  • carry out the Offer for Sale of up to 316,249,885 Equity Shares by the Selling Shareholder (President of India, acting through the Ministry of Finance, Government of India).

Category wise reservation

  • Qualified institutional investor-up to 60%
  • 1/3rd of the anchor investors portion to be reserved for domestic mutual funds.
  • Policyholders- Can’t exceed 10% (Policyholders with lapsed policy can apply for the IPO)
  • Employees- can’t exceed 5%

The strength of LIC, make LIC a favorable investment option

  • Fifth largest life insurer globally by GWP and the largest player in the fast-growing and underpenetrated Indian life insurance sector;
  • Trusted brand and a customer-centric business model;
  • A cross-cyclical product mix that caters to diverse consumer needs and an individual product portfolio that is dominated by participating life insurance policies;
  •  Presence across India through an omnichannel distribution network with an unparalleled agency force;
  • Harnessing technology capabilities to support customer connect and drive operating efficiencies;
  • Largest asset manager in India with an established track record of financial performance and profitable growth;
  • Robust risk management framework;
  • The highly experienced and qualified management team, distinguished Board, and strong corporate governance framework.

Financial Strength

  • The average Return on net worth over the last three years from 2019-to 2021 has been recorded at 182.25%.
  • The latest net asset value has increased to 12.68 from 10.30 computed in March 2021.
  • Net profit for as of September 2021 for LIC is Rs 29,741.39 million highest among other industry players.( SBI Life insurance-Rs 14,558.49 crores; HDFC life insurance company limited- Rs13,608.72 million; ICICI Prudential – Rs 9,561.55 million)

For the investor, the wait is almost over, as the LIC is expected to get the nod from the SEBI within 3 weeks from now. An investor must gear up to take part in the largest ever IPO to hit the Indian market soon.

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