LIC IPO: Good to subscribe, but probably not the best time to float India's largest public offer, says analyst

The deck has been cleared for the India's biggest initial public offering (IPO) ever in the history of Indian primary market. State-owned insurer, Life Insurance Corporation of India (LIC), filed a draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (Sebi) on last Sunday with plans to divest 5% stake in LIC through primary offering. The IPO, which is expected to hit the Dalal Street in March, comprises an offer for sale of up to 316.25 million shares by the Government of India.  

See Zee Business Live TV Streaming Below:

As per LIC DRHP, employees and policyholders of the insurance behemoth will get a discount over the floor price. The offer includes not more than 5% reservation for its eligible employees and not more than 10% for its policyholders. LIC policyholders who have one or more than one policy on the DRHP submission date (February 13) shall be eligible for claiming the quota benefit.  

Not the best of the times to launch country's largest IPO

As the Indian capital market braces for the country's biggest IPO, market expert is of the view that the issue is not coming at the best of the times given the scale of this public offering.  

"Given the large balance sheet size and huge market share, LIC IPO is good to subscribe. But, given the volatility in the market amid geopolitical issue between Ukraine and Russia and potential interest rate hike in US this March, probably this is not the best time to come up with this IPO," says Arijit Malakar- Equity Research Analyst at Ashika stock Broking limited.  

LIC IPO expected valuation

As the government plans of raising nearly Rs 65,000 crore from 5% stake sale, it indicates that the insurance behemoth could be valued at Rs 12.5 lakh crore, making it the most valuable than any other listed government owned companies, says the analyst.  

"However, to overcome a tough market, LIC is banking on its 1.3 million agents and more than 250 million policyholders to get to the finish line. Further, the level of optimism showed by the retail investors in last 2 years, it can be expected that there is enough appetite for Indian investors to subscribe the LIC issue," says Malakar.

Valuations key for short-term success

Meanwhile, valuations would be crucial to attract retail investors initially, as per analysts.  

"In the short-term, the valuation demanded by the government and discount provided to retail investors will define the success & performance of the offer, while, in the long-run, the end demand and performance will depend on its future growth, profitability, and sustenance of market share in the life insurance industry," says Vinod Nair, Head of Research at Geojit Financial Services.

LIC stands on strong fundamentals and if it prices its issue right, investors will flock to it even if there is a small blip in market sentiment, opines Ashika stock Broking limited analyst.  

"Government should price the issue in a manner so that people can make money. LIC IPO could bring more accountability and transparency to Indian equities, which will bring more foreign money to Indian market. As the investment opportunity is drying up in China, at least for the time being, the LIC IPO may offer just the right chance for large global funds to park their cash in India," adds Malakar.

LIC IPO expected market Cap

The LIC IPO would be the biggest IPO in the history of Indian stock market and once listed, LIC's market valuation would be comparable to top companies like RIL and TCS.  

So far, the amount mobilised from IPO of Paytm in 2021 was the largest ever at Rs 18,300 crore, followed by Coal India (2010) at nearly Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore.

LIC subscribers

As of September 30, 2021, LIC had 2,048 branch offices and 1,554 satellite offices across India, covering 91 percent of the country's districts. In addition to its life insurance business in India, it has branches in Fiji, Mauritius, and India.

The company has subsidiaries in Bahrain (with operations in Qatar, Kuwait, Oman, and the United Arab Emirates), Bangladesh, Nepal, Singapore, and Sri Lanka in the life insurance industry.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision )