As the LIC IPO is all set to come in the market this week, the much-awaited offer has always in the limelight due to its sheer size and the company’s huge market share in the life insurance segment.
As most analysts have given the ‘subscribe’ rating to the issue, some are also cautioning them about the pitfalls before investing in the IPO.
Samco Securities, Religare Broking, Anand Rathi, and Marwadi Financial Services have given the ‘subscribe’ rating to the state-own insurance behemoth’s IPO.
There are some caution points that investors need to keep in mind.
Life Insurance Corporation (LIC) does not have a strong digital presence and almost all of its policies are sold through agents.
According to the company’s draft papers, only 36% of individual renewal premiums are collect digitally, compare with over 90% for private players.
Analysts said that if this trend continues, the total cost for LIC is likely to increase, going forward.
LIC’s value of new business (VNB) margin is low as compare to its private sector peers.
The state-own insurer’s VNB as of September 2021 stood at 9.9%, whereas its peers ICICI Prudential Life, HDFC Life, SBI Life, Bajaj Allianz Life and Max Life report the VNB margin in the range of 11% to 27%.
Life Insurance Corporation has a market share of 64% in terms of total life insurance premiums.
So it has losing the market share to its private peers.
LIC grew at a compound annual growth rate (CAGR) of 9% between 2015-16 and 2020-21, while private insurers witness a growth of 18% during the same period.
The initial public offering, which will open for the public and policyholders on 4th May 2022 and continue till 9th May 2022, has a price band of Rs 902-Rs 949 per equity share.
It will have a Rs 60 per equity share discount for policyholders and a Rs 45 discount for employees and retail investors.
The share allotment is likely to be done on 12th May 2022 and its listing will take place on 17th May 2022.
The IPO is expect to garner up to Rs 21,000 crore.
Its valuation stands at Rs 6,00,000 crore, which is 1.11 times the embed value of around Rs 5,40,000 crore.
A bidder can invest in a minimum of one lot comprising 15 shares, and in multiples of 15 thereafter with a maximum cap of 14 lots.
Retail investors will be able to participate in 35% of the IPO size, while 10% of the IPO shares will be reserve for policyholders.
Qualified institutional buyers will have access to 50% of the shares.
The remaining 5% is reserve for non-institutional buyers.
