The largest life insurer in India and biggest domestic institutional investor is likely to file its DRHP with the markets regulator in the current week, said a source familiar with the matter.
According to a report from brokerage firm Angel One, LIC is expected to be valued around Rs 13-15 lakh crore, with the insurance behemoth raising about Rs 70,000 crore-Rs 1,00,000 crore from its initial stake sale.
The Government of India holds 100 per cent stake in the insurance player which has assets worth Rs 44 trillion as of the financial year 2020-21.
Established in 1888, LIC has more than 29 crore policy holders. It has a separate quote for them, if the policy is linked to their PAN cards. The company may allot shares at a discounted rate to the policyholders. It has more than Rs 34.3 trillion worth of life funds.
Gurpreet Sidana, Chief Operating Officer, Religare Broking said that the reach, trust and brand loyalty that LIC enjoys amongst its policyholders and general public is phenomenal.
“We believe the LIC IPO would bring in a large number of new-to-equity market investors to participate in ownership of the largest financial services company of the country,” he added.
LIC has 8 zonal offices which operate 113 divisional offices and 2,048 branches with 11.48 lakh agents across the country. It generated a surplus of Rs 57,780 crore, of which Rs 2,889 crore (5 per cent) was paid to the government as dividend.
Arijit Malakar, Head of Retail Equity Research, Ashika Group said that 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.
“Government is further likely to provide a discount to the retail investors for the LIC IPO,” he added. “Overall it is expected that the LIC IPO will see increased retail participation given the right pricing of the issue.”
LIC’s claim settlement ratio stands at 98.27%, with a solvency ratio of 176 per cent against the required of 150 per cent. LIC has NPA of 7.78 per cent from its all investments.
Angel One has listed out a number of reasons for investors to apply for LIC’s IPO including its highest market share in the country, which stands at 66.18 per cent as of FY 2020-21.
Being a large issue, the chances of allotment are higher. The life insurance industry is growing at 22.5 per cent annually, yielding higher return on investment, said the brokerage firm in its report.
According to the report, the IPO of LIC has enough room for a sharp rise in the number of demat accounts in India as CSDL has more than 50 million demat accounts currently as against about 291.5 million policyholders and agents.
“If we assume 100 per cent of these Demat holders are LIC policyholders, we still have about 24 crore policyholders without any demat account. Hence, the opportunity for new customer acquisition is very high,” it added.
The government is expecting at least new 1 crore demat accounts to open post launch of LIC IPO. Increase in retail participation, which the LIC IPO is likely to bring, will further add to mainstreaming of the equity culture in India, said Sidana of Religare Broking.
“We believe it would encourage more people to look at equities for investment. Even if 25 per cent of LIC policy holders who do not currently hold demat accounts plan to invest in this IPO, it would double the retail investor base in India,” he added.
Market participants believe that the IPO of LIC will activate dormant investors to participate in the Indian equities actively and the proposed LIC IPO a good tool to reactivate such customers.
Sidana said that the rise in active user base will depend upon the market conditions and initial hand-holding an account holder gets.
An investor today might enter into the market to invest in India’s largest life insurer as a sole motive, but if a broker educates him/her about the right set of products for their financial needs, he/she may turn into an active one, he added.
The government is very keen to bring more retail investors in the market through this IPO as the demat penetration in India is one of the lowest in the world, the experts said.
It is for sure that the LIC IPO is going to see a lot of retail investors’ interest, which will result in record number of demat account opening, said Malakar of Ashika Group.
All the financial institutions and intermediaries are already working on making the IPO a grand success by increasing the retail participation in this IPO, he adds.
