One of the most-awaited initial public offerings (IPO) to date, that of Life Insurance Corporation (LIC) of India, opens today to raise Rs 21,000 crore from investors.
This could be a watershed moment for the Indian capital markets since it may attract millions of new investors from Tier-2 and Tier-3 towns for the first time.
Retail investors would be offered the issue at a discount of Rs 45 per equity share, while LIC policyholders will receive a Rs 60 discount on the issue price.
The minimum bid lot is 15 shares, with subsequent bid lots in multiples of 15 shares and the maximum bid amount capped at Rs 2 lakh for retail investors.
So, should you put your money into India’s largest public offering to date?
Here’s what a few brokerages suggest:
Reliance Security has assigned a ‘subscribe’ recommendation. It stated the IPO was valued at a fraction of the price of private life insurance firms. Because of its omnichannel distribution network, which includes 1.33 million agents, several partners, and alternative channels, LIC is well-positioned. The company has a great financial track record as well.
Angel One has given the IPO a ‘subscribe’ rating. Though there are concerns about LIC’s market share loss in the individual insurance sector and historically lower profits, the brokerage believes that valuations take into account majority of the negatives.
Profits are likely to rise from present low levels in the future years as the product mix improves and surplus is transferred to shareholders’ accounts, which, combined with low valuations, provides confidence.
Furthermore, a retail investor and LIC policyholder discounts of Rs 45 and Rs 60, respectively, make the IPO more appealing to them.
Geojit Financial Services
Geojit Financial has assigned a ‘subscribe rating on a short to medium term basis’. The current valuation is attractive due to its strong market presence, improved profitability due to changes in excess distribution norms, and strong sector growth outlook, despite headwinds such as declining market share, lower short-term persistency ratios, and sub-par margins demanding a discount to private players.
Choice Broking has given a ‘subscribe’ rating to the IPO. LIC had a market share of 61.4 percent in NBP as of December 31, 2021. In terms of the number of individual and group policies issued, it had a market share of 71.8 percent and 88.8 percent, respectively. LIC had 13.3 lakh individual agents, accounting for 55 percent of India’s overall agent network.
Ventura Securities has given the issue a ‘subscribe’ rating. LIC has 2,048 branches, 113 divisional offices, and 1,554 satellite offices around the country, and even operates globally. The company sells both insurance and investment solutions. Life insurance as a percentage of GDP is expected to reach 3.8 percent by FY26, up from 3.2 percent in FY21, at this premium level.
Nirmal Bang has assigned a ‘subscribe’ rating to the IPO. LIC has claimed that it will concentrate its efforts on the non-par category, particularly term life insurance. The firm believes there is a possibility for margin expansion as the share of non-par products grows.
The VNB margin in H1FY22 is 9.3 percent, which is much lower than private-sector counterparts. India has the biggest protection gap among APAC countries, at 83 percent (2019). India’s life insurance NBP is predicted to develop at a CAGR of 14-16 percent over the next decade. So, LIC is poised to benefit due to its market positioning and anticipated product launches.
Religare Broking has given the IPO a ‘subscribe’ rating. Under penetration, combined with favorable demographic tailwinds, will generate multi-decadal growth in the life insurance business, with a CAGR of 14-16 percent from FY21 to FY32. Given its leadership position and continuous profit focus on diversifying its product mix, extending its distribution network, and embracing technology to help develop and achieve operating efficiency, LIC stands to.
Marwadi Financial Services
Marwadi Financial Services has given the IPO a ‘subscribe’ rating. The company is going to list at a P/EV of 1.1 times with a market cap of Rs 6,00,242.3 crore, based on the September 2021 embedded value of Rs 5,39,686 crore. However, its counterparts — HDFC Life and SBI Life — are trading at P/EVs of 4 times and 3 times, respectively.
LIC is India’s leading life insurer and a reputable brand with a proven track record of financial performance and profitable expansion. It is also accessible at a fair price when compared to its competitors.
GE Capital, too, has given the IPO a ‘subscribe’ rating. For LIC’s listed counterparts, the market cap to EV ratio ranges from 1.5x to 2.5x. LIC’s values, despite its colossal size, are competitively priced. As seen by statistics, its business is predominantly driven by an agent-based model (over 90 percent), implying that a more extensive digital onboarding of its network will be required to seek future growth.
It is still a profitable investment because of its huge networks, predicted double-digit growth, and attractive valuation relative to peers.
Swastika Investmart has given the issue a ‘subscribe for long term only’ rating. Market share loss to private competitors, reduced profitability and revenue growth, lower VNB margins, and short-term persistency ratios are all causes for concern.
To boost VNB margins in the future, the company aims to focus on protection products, non-par products, and related products. Investors should be aware that the insurance industry is a long-term investment.
ICICI Direct didn’t rate the IPO. With a strong distribution network and a diverse product portfolio, LIC is a market leader in the Indian life insurance business. As of September 30, 2021, LIC’s embedded value was Rs 5.4 lakh crore. It has raised expectations about adverse variation in persistence, which might have a major negative impact on financial condition and interest rate variations, as well as capital market volatility, which could have a negative impact on profitability.
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