LIC Files DRHP for Rs 63,000 crore IPO: Key Takeaways

State-owned insurance giant Life Insurance Corporation of India (LIC) has filed the draft papers for its IPO with market regulator SEBI. It will be the biggest initial public offering (IPO) in the history of the Indian stock market! 

The IPO is completely an offer for sale (OFS) by the Government of India. The Centre will divest a 5% stake (or 31.6 crore shares) in LIC and is expected to raise up to Rs 63,000 crore. The valuation is not yet finalised. The proceeds from the public issue will be crucial to meet the government’s revised disinvestment target of Rs 78,000 crore in the current fiscal (FY22). Once listed, LIC would join the league of India’s biggest companies like Reliance Industries and TCS. 

Let us dive into LIC’s Draft Red Herring Prospectus (DRHP) and analyse certain interesting findings. 

Company Profile - Life Insurance Corporation of India 

Life Insurance Corporation of India was formed on September 1, 1956, by merging and nationalizing 245 private life insurance companies in India. It offers unit-linked insurance products, saving insurance products, term insurance products, health insurance, and annuity & pension products. LIC is currently the largest company in the Indian insurance space, with a market share of above 64.1% in terms of premiums. 

They also hold a 66.2% market share in terms of new business premiums (NBS) and a 74.6% market share based on the number of individual policies issued. [NBS is the premium acquired from new policies during a particular year.] More importantly, LIC is the fifth-largest insurer in the world in terms of gross written premiums (GWP).

LIC is a trusted brand in our country and has a customer-centric business model. It has been a security net for Indians. Over the years, the company has harnessed technological capabilities to support policyholders and drive operational efficiencies. 

Factsheet:

LIC’s total assets under management (AUM) stood at a whopping Rs 39.55 lakh crore as of September 30, 2021 (Q2 FY22). Interestingly, this figure is more than 3.3 times the total AUM of all private life insurers in India. It is more than 1.1 times the AUM of the entire Indian mutual fund industry’s AUM!

The company has a strong omni-channel distribution network, consisting of 1.35 million agents, 3,463 micro insurance agents, and 174 alternative channels. LIC operates through an extensive network of 2,048 branches, 113 divisional offices, and 1,554 satellite offices. [A satellite office is a branch of a larger company that is physically separate from the organization's main office.] The insurer also operates in the UAE, Singapore, Fiji, Mauritius, Qatar, and the United Kingdom. 

The DRHP states that LIC’s embedded value (EV) stands at Rs 5.39 lakh crore in Q2 FY22. The EV of a life insurance company is the sum of the adjusted net asset value (NAV) and the present value of future profits. It is essentially the industry standard for valuing an insurance company. As per reports, the market valuation of LIC could be around 3-4 times the embedded value.

LIC is also the biggest player in India’s equity markets. As of September 30, 2021, its investments in listed shares represented ~4% of the total market capitalization of NSE! 

As of Q2 FY22, LIC policyholders’ investment portfolio included:

• Central government securities - 37.50% 
• Equity securities - 24.78%
• State government securities - 24.61% 
• Corporate bonds - 8.07%

Financial Performance

LIC has posted a strong growth in revenue and profits over the past three financial years (FY19-21). The company’s total income increased by 9% YoY to Rs. 7,03,732.43 crore in fiscal 2021. It was due to higher net earned premiums and investment income. Meanwhile, net profit rose 9.73% YoY to Rs 2,974.14 crore in FY21. The net profit on sale/redemption of policyholders’ investments jumped 105% YoY to Rs 39,809.61 crore during the same period. 

The gross written premium (GWP) increased at a CAGR of 9.21% on a consolidated basis between FY19 and FY21. GWP is the total premium an insurer writes during a specific period before deductions like reinsurance and ceding commissions.

Get Ready for LIC’s IPO!

Insurance is not too popular in India, especially when it comes to life insurance. Only a marginal proportion of the country holds life insurance. The total insurance coverage in India was recorded to be just 3.76% in 2019. This shows that there can be a massive scale of development in this sector. Amidst the Covid-19 pandemic, the awareness towards securing insurance policies has increased. Whether it be health insurance or life insurance, more people are actively looking for the best products that can safeguard their future.

Thus, LIC can capitalise on the high growth opportunities in the Indian life insurance sector.

Employees and policyholders of LIC would get a discount over the floor price. Up to 5% of issue size can be reserved for employees and up to 10% for policyholders. The Centre aims to launch LIC’s IPO in March 2022.

If you are a LIC policyholder and wish to apply for the IPO:

1. Your PAN must be updated in the LIC records.
2. The PAN used for LIC policies has to be the same as that registered with your broker account.

You can read the Draft Red Herring Prospectus of LIC’s IPO here. What are your views on the IPO? Do let us know in the comments section of the marketfeed app. We will bring you a detailed article on the IPO once LIC announces the price band and other details.