LIC IPO Explained: All you need to know about India's biggest public offering

LIC IPO. Sounds exciting, right? Why not! This is being billed as the biggest and the largest ever IPO sale ever in India. 

What is an IPO? 

IPO (initial public offering) is the process of offering shares of a private corporation to the public in a new stock issuance. What happens is an unlisted company announces IPO when it decides to raise funds through sale of shares for the first time to public. By doing so, a portion of the company is sold to public shareholders. Next it gets listed in stock exchanges, and eventually the company becomes a publicly-traded firm which means its shares can be traded freely in the open market.

THE LAUNCH OF LIC IPO

The IPO of the state-owned Life Insurance Corporation is finally opening for the public on May 4. The state-owned life insurer’s maiden IPO, India’s ‘biggest’ ever, will be available for public at a price band of Rs 902-949. The corporation will offload 22.13 crore equity shares, aggregating to a 3.5 per cent stake of the company. And at the highest Rs949 per share, the government will raise about Rs 20,557 crore, which is short of earlier projections of about Rs 60,000 crore. Despite the truncated size, it will still be the largest ever IPO in India.

Investors can bid for shares in a lot size of 15 shares and in multiples thereof. At the upper range of the price band, one lot of LIC will be worth Rs 14,235, exclusive of any discount.

Out of 22.13 crore equity shares that have been put on the block, 15.81 lakh shares will be reserved for employees while 10 per cent that works out to 2.21 crore shares have been reserved for policyholders who will get the shares at a Rs60 discount. Retail buyers and employees will get a cash discount of Rs 45 per share. The stocks will be listed on May 17. 

On a macro scale, 50% of the shares will be allocated to qualified institutional buyers (QIBs) while 35% shares will be for retail and 15% for non-institutional investors. 

How big is LIC?

In 1956, LIC was formed by merging and nationalizing 245 private life insurance companies. LIC is the fifth largest life insurer in the world by life insurance gross written premium (GWP) and the 10th largest insurer globally by total assets. At the end of FY21, LIC had a 66 per cent market share in new business premium (NBP).

The assets under management (AUM) of LIC jumped about 10 per cent to Rs 37,46,404.47 at the end of the financial year 2021 from Rs 34,14,174.57 crore in the previous year. The net profit of the company jumped to Rs 2,974.14 crore from Rs 2,710.48 crore during the period under review. For the period ended December 31, 2021, LIC had a total AUM of Rs 40,90,786.78 crore and reported a net profit of Rs 1,715.31 crore.

The corporation has been a financial institution for a long time, and continued to remain unlisted for such a long time. LIC was always an investor, but now it is coming before the investors to get invested in.

Is the valuation right? 

The LIC valuation has been pegged at Rs 6 lakh crore. As per DIPAM secretary Tuhin Kanta, the valuation is ‘fair and attractive’. He said the decision to list LIC was after taking into consideration various factors like market demand, reduced market volatility, domestic flows and LIC performance.

In February, the government had plans to sell 5% equity in LIC. However, it now plans to sell just 3.5% stake in the company for Rs 21,000 crore. The reason of this trim could be the volatile market conditions caused by the Russia-Ukraine conflict even as the largest listed insurance companies saw a sharp decline in share prices recently.   

Should the investors buy into the IPO?

It is claimed that the reduction in valuation has made the issue attractive. Investors may or may not get immediate listing gains, but it is likely to generate decent returns over next 3-4 years. With a healthy market share of around 60%, experts feel that medium-to-long term investment could also be a good option.

What about the discounts for policy holders, employees and retail investors? 

The LIC IPO market lot size is 15 shares, and a retail individual investor can apply for up to 14 lots, which is almost 210 shares. 
If you are an LIC policyholder, then you will get a discount of 60 rupees per share. Employees and retail investors get discount of Rs 45 per share.

The LIC IPO subscription will be from 4th of May till 9th May, whereas anchor investors can subscribe to the shares on May 2.

IS THE TIMING RIGHT? 

The LIC IPO was originally planned to be launched in March, but it was pushed further in the wake of the Russia-Ukraine crisis.
The government filed a fresh draft red herring prospectus (DRHP) with SEBI last week for the LIC IPO. And the regulator approved it earlier this week. 

The government has a window till May 12 to launch the IPO based on the papers filed with SEBI. To attract funds from financial markets across the world, the corporation must follow the regulatory requirement and make sure its last filed audited financial numbers are not older than 135 days.

How will the IPO be received? 

If reports are anything to go by, the IPO will see huge buying interest from the public. While the anchor allotment limit is Rs 6300 crore, so far almost 100 anchor investors have committed around Rs 13,000 crore for the issue. And when the retail investors join in, the IPO will likely see tremendous interest from people. 

How will the LIC look post IPO?

The insurer is expected to get a boost in terms of its profile and corporate governance. Transparency will come in and the management will be more accountable to the shareholders--something unimaginable for LIC.