In continuation to our article covering the LIC IPO during the filing of the Draft Red Herring Prospectus (DRHP), the link for which can be found here.
With the issue size of 20,557 crores, LIC IPO is certainly the biggest IPO to date, which opened for the Retail Investors (We have covered different types of investors in IPO, the link for which can be found here).
LIC IPO also breaks record and becomes the 1st company to enter the ₹ 20,000 crores and more IPO club. The market capitalization of LIC is also most probably the highest of any company at more than 6,00,000 Crores!
During the DRHP filling, the government had initially planned to dilute 5% of its 100% stake in the company. After critical feedback from analysts and QIBs and the instability caused due to the Russia-Ukraine conflict, the IPO size has been reduced from 5% to 3.5%, and the valuation from 12-13 lakh crores to 6 lakh crores.
So, what does the IPO offer?
The company offers 22.13 crore shares for its 3.5% stake. Of these shares, the following table shows how many shares have been reserved as per the category of the investor:
Type of Investor Percentage of the stake Number of shares
Qualified Institutional Buyers (QIB) 50.00% 11.05 Non-Institutional Investors 15.00% 3.32 Retail Investors 35.00% 7.76
How much would be required to pay for the IPO?
The IPO is priced between Rs 902 and Rs 949 per share, with investors able to bid in lots of 15 shares and multiples thereof, requiring a minimum investment of Rs 14,235 at the top end of the pricing band. Retail investors and employees get a Rs 45 per share discount, while policyholders get a Rs 60 per share discount.
The portion for Anchor investors opened up on Monday, i.e., 2nd May 2021, which was subscribed fully, raising ₹ 5,620 crores.
Time frame to apply for the IPO:
Retail investors can start subscribing to the IPO today, i.e., Wednesday 4th May 2021. The IPO will be open till 9th May 2021.
The LIC IPO will be also open on 7th May, i.e., a Saturday. Being open on a Saturday is pretty unusual. Looking at the size of the IPO, an exemption has been given to the IPO as per a notification of the National Stock Exchange.
Key Positives of LIC:
- LIC has more than 12 lakh agents who bring most new business. LIC plans to provide ‘set returns’ and life insurance protection. Therefore this makes it simple for brokers to sell and gives insurers peace of mind.
- India has a high level of confidence in LIC for life insurance and investing. In India, LIC is synonymous with the term’ insurance.’
- LIC is in charge of assets worth Rs 39,00,000 crores, and this sum is greater than the whole mutual fund industry. These funds are split between bonds and equities. They own 4 percent of all listed equities in India and own more government bonds than the Reserve Bank of India.
Key Challenges faced by LIC:
- LIC’s new policy growth is low, as it continues to lose market share to private insurers, particularly in metropolitan regions.
- Insurance and investment goods are low-profit margins businesses.
- It is also impossible to value LIC because its business strategy is unlike any other. The LIC takes upfront money and then reimburses policyholders later. They can’t recognize the premiums they collect (part insurance, part investment) as income.