LIC IPO: We expect strong retail participation in issue; will still be largest IPO, says DIPAM secretary

The LIC IPO was considered unthinkable, said DIPAM secretary Tuhin Kanta Pandey, at a LIVE press event on April 27.

"LIC IPO is a great opportunity. Something was considered unthinkable and it now coming to investors to become invested in, said DIPAM secretary Tuhin Kanta Pandey.

The LIC IPO is of the right-size. "We expect significant retail participation in line with our vision," he said, adding, "Even after reduced size, LIC will be largest IPO."

DIPAM secretary said of the IPO: This is right-sized considering the capital market environment and will not crowd out capital and monetary supply, given the current environmental constraints.

The IPO will enhance value for investors in long-term, said Pandey.

The share of surplus for participating will move from 5 percent to 10 percent, Pandey said.

LIC sets price band, policy holders to get discount

The country's largest life insurer LIC on Wednesday set the price band at Rs 902-949 per share for its Rs 21,000 crore initial public offering (IPO), which will open on May 4.

A discount of Rs 45 has been set for retail and employees, while the bid lot size has been fixed for 15 shares per lot, sources told ANI.

The IPO will open on May 2 for anchor investors and from May 4 to May 9 for investors.

At the upper end of the price band the government will garner around Rs 21,000 crore.

With this IPO, which is through an offer-for-sale (OFS) route, the government is looking to divest its 3.5 percent stake in the state-run insurer by selling 22.13 crore shares.

The retail investors and eligible employees will get a discount of Rs 45 per equity share and policyholders will get a discount of Rs 60 per equity share.

The issue will open for subscription on May 4 and to close on May 9. The bid lot for the issue would be 15.

LIC Board approves cut in IPO issue size

On Saturday, the LIC board approved a cut in its IPO issue size to 3.5 percent from 5 percent. The government is now expected to sell 3.5 percent of its stake in LIC for Rs 21,000 crore, thereby valuing the insurance monolith at 6 lakh crore.

Around 10 percent of the issue will be reserved for policyholders while employees will be eligible to book up to 0.15 crore shares of the IPO. Employees and retail investors will be given a discount of Rs 45 rupees while LIC policyholders will be offered a discount of Rs 60.

After provision for policyholders and shareholders, the remaining shares will be allocated in the ratio of 50 percent to qualified institutional buyers (QIB), 35 percent for retail and 15 percent for non-institutional investors.

Out of the QIB's portion, around 60 percent will be reserved for anchor investors, the source told a wire agency.

LIC management and investment bankers will embark on road shows in six cities - Mumbai, New Delhi, Bengaluru, Ahmedabad, Rajkot and Kolkata - where they will meet potential investors and analysts starting on Wednesday. The road shows are likely to be concluded by the end of this week.

Expert view

Santosh Meena, Head of Research, Swastika IInvestmart Ltd. said regarding the price band:

LIC is the largest insurance provider company in India. During the start of the IPO, the valuation was pegged at Rs. 12 to 13 lakh crores, but due to global economic factors and increased volatility, government has decided to slash the valuation to about Rs. 6 lakh crores.

LIC's embedded value, which is a measure of the consolidated shareholders value in an insurance company, is around Rs 5.4 lakh crores as of September 30, 2021, as per international actuarial firm Milliman Advisors. So, at a valuation of Rs. 6 lakh crores, the issue is priced at a Price to Embedded Value of 1.1, which is at a discount compared to its listed India as well as global peers.

LIC is synonymous with insurance in India and enjoys a huge competitive advantage in terms of brand value. However, there are concerns with the company like losing market share to private players, lower profitability & revenue growth compared to private players. But the valuation of 1.1 times Price to Embedded Value discounts the above concerns and policy holders getting a discount of Rs. 60 makes this a bumper offer.

Nevertheless, investors must be aware that the business of insurance is long term in nature; therefore we recommend this issue for long term only and policyholders must grab this opportunity because of the discount given.

The maximum investment limit is Rs 2 lakh distinctly for applications under retail, policyholder, and employee categories. Thus, a policyholder can apply for shares worth a maximum of Rs 2 lakh under the policyholder category and an additional Rs 2 lakh under the retail category.

Published on: Wednesday, April 27, 2022, 01:11 PM IST