LIC IPO Date 2021: BIG boon for investors! Govt to reserve 10 pct share for LIC policy holders; Over 1 cr Demat accounts to open

The LIC IPO will contribute a significant chunk to the government’s budgeted disinvestment target of Rs. 2.10 lakh crore this fiscal year. The upcoming LIC IPO comes at a time when the government’s plans to divest its stake in Air India, BPCL and Concor have been put on the back burner due to the COVID-19 pandemic. In fact, the bid invitation deadlines for Air India and BPCL have been pushed back twice this fiscal year.

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About LIC

In India, there are 24 life insurers currently in operation, with LIC commanding the top spot with a market share of 69% in FY20. During this fiscal year alone, LIC had collected first-year premiums of Rs. 1.78 trillion – 25.17% higher than that of the previous year’s Rs. 1.42 trillion, according to the Insurance Regulatory and Development Authority of India. It is also worth noting that LIC, in which the government of India holds a 95% stake, has assets worth Rs. 34 trillion.  

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LIC IPO Size

The government of India is likely to dilute not more than 10% of its entire stake in LIC. According to the estimates made by various analysts, the size of the upcoming LIC IPO would range somewhere between Rs. 70,000 crores to Rs. 1 lakh crores.

However, the Finance Ministry, during the budget presentation, stated that the government was expecting to raise up to Rs. 90,000 crores through the stake sale of LIC and IDBI Bank. Under such circumstances, the LIC IPO size may not touch the magical Rs. 1 lakh crores and would perhaps be restricted to somewhere between Rs. 70,000 crores and Rs. 80,000 crores.

That said, the official estimate of the LIC IPO size still remains to be announced.  

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LIC IPO Valuation

According to the government’s estimation, the LIC IPO valuation is pegged at around Rs. 13 lakh crores to Rs. 15 lakh crores. However, most market analysts and experts seem to put the figures somewhere around Rs. 8 lakh crores to Rs. 11.5 lakh crores. Again, investors would have to wait for the official figures to be released to get to know the real LIC IPO valuation. 

LIC IPO Date 2021: A big development has occurred regarding the Initial Public Offering (IPO) of the Life Insurance Corporation of India (LIC).  The government is likely to reserve 10 per cent share for LIC policy holders in the public issue. More than 1 cr new Demat accounts to open before the launch of the IPO. Zee Business’ Anurag Shah has this BIG BREAKING NEWS!

Currently, the government owns a 100 percent stake in LIC. Once listed, LIC is likely to become the country’s biggest company by market capitalization with an estimated valuation of Rs 8-10 lakh crore.

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A big development has occurred regarding the Initial Public Offering (IPO) of the Life Insurance Corporation of India (LIC).  The government is likely to reserve a 10 percent share for LIC policyholders in the public issue. More than 1 cr new Demat accounts to open before the launch of the IPO. Zee Business’ Anurag Shah has this BIG BREAKING NEWS! He said that the DIPAM Secretary had earlier in an interview indicated that there will be a 10 percent reservation for LIC policyholders.

Finance Minister Nirmala Sitharaman had already announced in her Budget 2021 speech that the LIC IPO will be brought in FY22. Shah said that there will be a reservation of shares for LIC policyholders, he said citing his sources in LIC. He further said that the Department of Investment and Public Asset Management (DIPAM) has indicated that there will be a 10 percent reservation for the LIC policyholders in the IPO.

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Govt may reserve 10% of LIC IPO for policyholders

Policyholders of Life Insurance Company (LIC), are likely to get an opportunity to be a proud owner of the insurance behemoth as the government is planning to reserve 10% of the planned LIC IPO for policyholders.

“For LIC IPO, we have put it in the Act that we will offer something to the policyholders. We are telling the policyholders to become shareholders. Up to 10% can be offered to policyholders,” Dipam secretary Tuhin Kanta Pandey told Times of India in an interview as he detailed the next steps for strategic sales.

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Finance Minister Nirmala Sitharaman in her budget speech had mentioned that LIC IPO will be launch in the next financial year as the Centre aims to raise Rs 1.75 lakh crore through disinvestment in FY22.

On the disinvestment target set for FY22, Mr Pandey said last year’s target was not achieved because of the Covid pandemic. “That is now behind us and things are looking up and we hope to complete the sales. I am hopeful it is a realistic target.”

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What are the advantages of the upcoming LIC IPO?

The LIC IPO has many upsides. Here’s a preview.

  • The IPO would allow retail individual investors to take part in the wealth creation process of LIC.
  • The LIC IPO would bring about greater levels of transparency in the operations and governance of insurers.
  • The IPO would bolster the BFSI sector and attract more foreign investment.
  • Since the stake sale is not more than 10%, the government would still retain full control over the operations of LIC.

There’s absolutely zero adverse impact on policyholders, employees, and other stakeholders.

LIC Key Facts

  • LIC has its presence all over India with its corporate office headquartered in Mumbai. As of 31st March 2020, LIC has 8 zonal offices, 113 divisional offices, 2,048 branch offices, and 12 lakhs+ agents. LIC also has international presence through its branches/joint venture companies/wholly-owned subsidiary and is present in 14 countries including places like Singapore, Kenya, Sri Lanka, Nepal, Bangladesh, Fiji, Kuwait, Mauritius, Oman, Qatar, UAE, UK, and Bahrain.
  • The product mix of LIC includes conventional insurance plans along with unit plans, special plans, pension plans, micro insurance plans, and health plans. As of 31st March 2019, LIC has approximately 290 million policyholders.
  • LIC’s staff strength is 111,979 employees as of 31st March 2019.
  • LIC is a profitable public sector undertaking. As of 31st March 2019, LIC has a net premium income of Rs 337,000 crores (an increase of 6.08% compared to the previous year) and a profit after tax of Rs 2,688 crores. The profit from its equity investment stands around Rs.23,000 crore.
  • LIC holds a giant’s share in the insurance industry with 66.24% market share in terms of total first-year premium (premium collected from new business in a financial year excluding single premium) and 74.71% in terms of the number of policies.
  • The Gross NPA of LIC has been on the rise and is at 6.15% as of 31st March 2019. However, considering the huge asset size, there is not much to worry about as LIC has made considerable provisions for the bad loans.
  • Key Ratios of LIC as of 31st March 2019:
    • The solvency ratio of LIC stands at 160% which is little above the required solvency ratio of 150% as stipulated by the Insurance Regulatory and Development Authority (IRDAI).
    • The LIC persistency ratio indicating a pool of satisfied customers in terms of the number of policies and terms of annualized premium ranges between 50-60% and 60-77% respectively.
    • The claim settlement ratio of LIC is the highest of all insurers and stands at 98%.
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This Metric Gives LIC A Market Valuation Of Rs 9.5 Lakh Crore

The government expects to raise about Rs 70,000 crore (nearly $10 billion) by selling part of its holding in the insurer it fully controls, making it the nation’s largest IPO. And it would contribute about a third of the government’s record divestment target for 2020-21 fiscal. But the finance ministry hasn’t yet disclosed the amount of stake it plans to sell or the valuation.

Commonly-used valuation methods using price-to-earnings and price-to-book multiples can’t be used for insurers. That’s because these don’t reflect the correct value of assets for such a company.
The best way to value a life insurance company is by computing embedded value—or the present value of future profits. Market capitalisation is expressed as a multiple of this number when comparing insurers. LIC, however, hasn’t disclosed its embedded value so far.

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Macquarie’s Take

Based on the present value of 5 percent of the surplus that LIC has to pay its shareholders every year, Macquarie calculated LIC’s embedded value to be in the range of Rs 20,000-25,000 crore. This, the brokerage said, doesn’t include the mark-to-market value of real estate properties, unrealised gains from government securities, and equities.
The brokerage said in case LIC was to mark up the net worth to the current value of properties and gains sitting on the investment book, then at best LIC could trade at its embedded value.

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LIC has only marginal exposure to non-participating policies like unit-linked plans where policyholders don’t receive dividends. The bulk of its business comprises participating policies that have guaranteed benefits or sum assured along with non-guaranteed benefits such as bonuses and cash dividends.

Currently, 95 percent of the entire surplus earned from participating and non-participating policies is shared with the policyholders and only 5 percent goes to shareholders—in this case, the government. That’s unlike its private sector peers, who only share profits from participating policies in the ratio of 90:10 and the rest is attributable to shareholders.

HDFC Life Insurance Company Ltd., which has a higher share of non-participating policies in its business, trades at 5.6 times its embedded value. That’s the highest market capitalization-to-embedded value ratio among Asian peers. Ping An Insurance, China’s largest private-sector insurer, trades at 1.33 times the embedded value for its life and health insurance business, according to a February rep

A Rs 9.56 Lakh-Crore Insurance Giant? Valuation experts BloombergQuint spoke with said the closest metric that can be applied to LIC, in the absence of an embedded value, is the ratio of market capitalization to assets under management. That needs to factor in a break-up of assets since insurers offer market-linked and non-market linked plans that are valued differently.

Market-linked plans are valued at the net asset value of the investments, just like mutual fund units, and the risk is borne by customers.

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Non-linked plans for which insurers provide upfront premium received from customers towards future liabilities. The premium allocation declines as the term of the plan increases.

HDFC Life, an insurer with a 50:50 split in non-linked and linked businesses, leads the valuation charts among Indian listed life insurers with its market capitalization at 0.96 times its assets. But it’s not comparable with LIC since HDFC Life enjoys a governance premium and is also privately owned. The closest insurer to LIC is SBI Life, a quasi-public sector company because of the 58 percent shareholding of State Bank of India. SBI Life trades at a 50 percent discount to HDFC Life.

LIC’s valuations, however, have to be further discounted, two valuation experts told BloombergQuint on the condition of anonymity since valuations are still not out. High dependence on non-linked plans and the tendency of the government to use it as an investor of last resort to either support the market or rescue offers of other state-owned companies.

That would give LIC a market cap-to-assets multiple of 0.32 times. Given LIC’s Rs 29.87 lakh crore worth of assets as of September, India’s largest life insurer could be valued at: Rs 9.56 lakh crore.