LIC IPO: Valuation, discount key for success of state-run insurer's public offer in short-term, says expert

The government has filed draft red herring prospectus (DRHP) for initial public offering (IPO) of the country's largest life insurer, Life Insurance Corporation of India (LIC), with market regulator Securities Exchange Board of India (Sebi). LIC is India's largest life insurer with a market share of 64.1 percent in terms of premiums. With this IPO, the government plans to sell 5% stake in LIC is estimated to be around Rs 63,000 crore.

"The DRHP of LIC IPO has been filed today with the SEBI. For filing valuation about 31.6 crore shares are on offer representing 5 per cent equity," Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey has tweeted.  

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As the government gears up to flat India's larget IPO, Vinod Nair, Head of Research at Geojit Financial Services, is of the view that in the long-term, the end demand and performance will depend on its future growth, profitability, and sustenance of market share in the life insurance industry.

Generally, the appetite for LIC IPO will be high from common & new investors given its mammoth public brand value, said the expert .  

"In the short-term, the valuation demanded by the government and discount provided to retail investors will define the success & performance of the offer. We can presume a high demand or vice versa, depending on the valuation demanded by the government and whether the LIC’s embedded value is at discount or premium to the insurance industry average," he added.  

The issue with a face value of Rs 10 each per equity shares will be a comprehensive offer-for-sale (OFS) of up to 316,249,885 equity shares by the President of India through the Ministry of

Finance, Government of India ("Selling shareholders"). The offer also includes not more than 5% reservation for its eligible employees and not more than 10% for its policyholders.  
Meanwhile, holders of LIC may see reduced return on their policies owing to the change in the sharing of the surplus, said the life insurer.
 
In its Draft Red Herring Prospectus (DRHP) filed with the SEBI, the LIC said reduction in the availability of surplus to participating policyholders following the amendment to Section 24 of the LIC Act might make its policies less attractive to some customers, reported IANS.

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.

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