LIC IPO Is A Bumper Offer, Policyholders Must Grab Shares, Says Swastika Investmart

The much awaited Life Insurance Corporation of India's share sale via initial public offering will begin on May 4 after being delayed by nearly two months. The government has fixed a price band of Rs 902-949 per share and it plans to raise Rs 21,000 crore valuing the insurance behemoth at Rs 6 lakh crore.

The government slashed the valuation of the country's largest life insurer to Rs 6 lakh crore from its earlier announcement of Rs 12-13 lakh crore due to global economic factors, Russia Ukraine war and increased volatility.

Life Insurance Corporation (LIC) would offer a Rs 60 discount for policyholders and Rs 45 for retail investors and employees.

The issue is likely to open for subscription on May 4 and is expected to close on May 9, and the bid lot would be 15. Anchor investors can subscribe to the shares of the insurance company on May 2.

With this IPO, the government would offload a 3.5 per cent stake in the insurance behemoth by selling 22.13 crore shares.

LIC's embedded value, which is a measure of the consolidated shareholders value in an insurance company, is around Rs 5.4 lakh crore as of September 30, 2021, as per international actuarial firm Milliman Advisors

Meanwhile, Santosh Meena, head of research at domestic brokerage firm Swastika Investmart says that it is a bumper offer and it is a good opportunity for policyholders to grab shares in the IPO given the discount it is being offered to them.

"At a valuation of Rs. 6 lakh crore, the issue is priced at a price to embedded value ratio of 1.1, which is at a discount compared to its listed in 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 and 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," Meena said.

"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," Meena added.