You are here: Home » Markets » News
Business Standard
Web Exclusive

LIC IPO opens today. Should you subscribe? What brokerages suggest

While LIC policyholders are entitled to Rs 60 discount over the issue price, the retail investors will be offered the issue at a discount of Rs 45 per equity share

Topics
LIC IPO | LIC  | Insurance

Puneet Wadhwa  |  New Delhi 

LIC, Life Insurance Corporation
LIC, Life Insurance Corporation

The Rs 21,000 crore initial public offer (IPO) of Life Corporation of India (LIC) to open for subscription on Wednesday. Ahead of the IPO, the public sector behemoth has raised Rs 5,627 crore from anchor investors, allotting around 59.3 million shares to 123 investors at Rs 949 per share.

ALSO READ: Over 70% of anchor allotment made to domestic mutual funds

While policyholders are entitled to Rs 60 discount over the issue price, the retail investors will be offered the issue at a discount of Rs 45 per equity share. The minimum bid lot is 15 shares and in multiples of 15 equity shares thereafter.


ALSO READ: LIC's $2.7-billion IPO set to be the fifth-biggest globally in CY22

So, should you invest in India's largest public offer till date? Here's what brokerages suggest.

Angel One

Valuations factor in most of the negatives. Expected improvements in product mix and greater transfer of surplus to shareholders account over the coming years are expected to drive profits from current low levels, which along with cheap valuations provide comfort. Moreover, the discount of Rs 45 and Rs 60 for retail investors and policyholders makes the issue more attractive for them. Hence, we are assigning a subscribe recommendation.

Geojit Financial Services

Due to higher mix of non-linked and participating policies, has a lower margin of 9.9 per cent as on FY21 compared to private players in a range of 20-25 per cent. Even though headwinds like declining market share, lower short-term persistence ratios and sub-par margins demand a discount to private players, the current valuation is attractive considering its strong market presence, improvement in profitability due to changes in surplus distribution norms.

At the upper price band of Rs 949, LIC is available at P/EVPS (Embedded Value per Share) of 1.1x, which is at a discount of 65 per cent compared to the average valuation of private life players. We assign a subscribe rating on a short to medium term basis.

ALSO READ: Valuation, market share: Why investors should opt for LIC's scaled-down IPO

SAMCO Securities

While the fact that LIC has been losing market share as well as its lower than industry value of new business (VNB) margins do instill apprehension, LIC has indicated its plans to improve the two. LIC aims to protect its market share through increased focus on bancassurance and enhancing direct sales of its products on its website. By improving its share of non-participating products and protection plans, it aspires to improve its margins. The long-term direction of LIC’s business and financial performance does hinge on good execution of these plans. Given the attractive valuation, the downside from here seems limited. We have a subscribe rating on this .

InCred

Although LIC retains market leadership in India with around 64 per cent share in new business premium (NBP) as at end-September 2021, a dip in its share of individual business with nearly 44 per cent share is a clear disappointment. Our initial discussions with investors do highlight concerns over bureaucratic functioning, low margins, restricted free float, and weak profitability. Also, now with lower valuation and lower float, the stock will no longer be an index stock. However, the current pricing does mitigate most of these concerns and provides an attractive opportunity. We remain uncertain about initial listing gains, but do recommend the investors to subscribe to the for a mid-to-long term investment horizon.

Funds India

LIC being the largest and most trusted insurance company in India we are expecting to see a lot of first time investors especially from the Tier-2 and Tier-3 to participate in this . What investors would look before investing in the would be penetration of LIC in untouched by the private insurance players. IPO seems attractive on the valuation front. We are positive on this IPO. =========================

Twitter: @Pun_ditry

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Tue, May 03 2022. 09:46 IST
RECOMMENDED FOR YOU