Investors should look at the LIC mega IPO through the lenses of “valuation” and “quality of business” because those are the fundamentals of selecting any stock. LIC comes up strong in both these parameters.
In terms of business, it has the highest share in the life insurance market. And, in terms of valuation, the IPO is at a much lower valuation than of its listed peers.
LIC has fixed the price band at Rs 902-949 per equity share for the issue. Considering the upper end of the price band (Rs 949), the issue is valued at 1.10x its embedded value (EV) as on September 30, 2021. At this valuation, the insurance behemoth is the cheapest among domestic peers as the listed companies’ valuations are higher.
There are three listed players in the market at present—SBI Life, HDFC Life and ICICI Prudential Life. They command valuations in the range of 2.5x to 4x to their EV. This makes the LIC IPO an attractive offer for investors.
The offer seems more lucrative for policyholders as they get the discount of Rs 60 per share in the IPO bid. This is straightaway a 6.32 per cent discount. Similarly, there is a provision of a discount of Rs 45 for employees and retail investors. This translates into a 4.74 per cent discount. Will this discount and the lower valuation attract investors?
Market experts believe that getting subscription is not a big problem as even many loss-making companies have got tremendous response in the recent past. Earlier, experts were concerned about the issue size and the valuation. Now, the government has reduced both. From the earlier 5 per cent stake sale, it has now decided to dilute 3.5 per cent. Moreover, its valuation has reduced from 2x to 1.10x to EV, making it more attractive.
The astounding rise in new demat accounts in the financial year 2021—a record 14.2 million new demat accounts were opened—points at an upbeat market investing sentiment. The total figure has surpassed the 80 million mark. Besides, even if a small segment of LIC’s customers, employees and agents participate, the IPO will sail through comfortably. There is a huge response from policyholders to open demat accounts and update their PAN. “Roughly, we have linked more than 6-7 million policies with PAN cards,” said M.R. Kumar, chairman, LIC, while interacting with media in February 2022.
LIC’s brand value will also play a major role in attracting investors. “It (LIC) is deeply ingrained in the Indian ecosystem and mindset, so it has tremendous brand value. We are likely to see tremendous response from both retail as well as institutional investors,” says Pranav Haldea, managing director, Prime Database.
The buzz around the IPO is palpable and the journey for the behemoth has just begun. LIC, which itself is among India’s largest institutional investors, is likely to find enough investors.