Govt aims big for LIC IPO, inspired by Zomato; eyes Rs 10 trn valuation

Taking a cue from Zomato’s stellar initial public offering (IPO), through which it garnered a valuation of Rs 1 trillion, the government has asked its advisors and valuers to ascertain if the Life Insurance Corporation of India (LIC) should be valued at Rs 10 trillion or more.

The government is looking to offload about 10 per cent stake in LIC through the IPO. At that valuation, the government stands to net at least Rs 1 trillion from LIC’s proposed IPO, which will boost the Centre’s efforts to meet its disinvestment target of Rs 1.75 trillion for the current financial year. It has so far mopped up just Rs 9,110 crore from disinvestments and will receive another Rs 2,700 crore when Air India’s sale is completed. 

At present, the intermediaries are finalising the embedded value (EV) of India’s largest insurer, which will be key to derive the company’s value.

The Centre, in its interactions with valuers, has pointed out the successful listing of Zomato and its market cap breaching Rs 1 trillion on the back of bright prospects. As LIC is the country’s largest insurer and a brand in itself, it should fetch a valuation of at least Rs 10 trillion, government officials are learnt to have told the valuers. 

“The government is chasing a high valuation for ‘India’s crown jewel’ and is trying to figure out how it can get the best valuation and price for its stake sale,” an official said.

EV is calculated by adding the present value of future profits of an insurer to the net asset value (NAV) of its capital and surplus.

The EV is expected to be finalised by the end of this month. LIC’s valuation will then be computed using the value of new business, economies of scale, among others. EV comprises two components, adjusted net worth and value of in-force business.

Adjusted net worth represents shareholders’ value of surplus. It is the value of the shareholder’s equity, and amount of surplus attributable to shareholders in the participating, non-participating, and unit-linked funds. The value of in-force business is the present value of shareholder transfers from business of the company, allowing for the need to hold statutory reserves. The projected profits are calculated using best assumptions, adjusting for the statutory solvency margin.

The derived EV would be shared with the Securities and Exchange Board of India (Sebi) and the Insurance Regulatory and Development Authority (Irdai) while filing the draft red herring prospectus (DRHP) to the former. The Irdai’s regulations require an insurer to file the EV before an IPO.

Once the valuation is derived, the DRHP will be filed. The government is looking to launch the IPO in the last quarter of the current fiscal. 

The government will soon organise road shows, and reach out to investors ahead of the IPO. A preliminary EV is being sought from Milliman Advisors, the reporting actuary appointed by the government.

“A range is being discussed for the EV, and will be shared with the government,” the official said. This will help in reaching out to investors.

AIMING HIGH

• Valuers are expected to finalise embedded value of LIC this month
• EV will be used to derive valuation of the company; file DRHP
• Road shows for IPO will be organised soon
• Govt has sought preliminary EV from actuary, and may share a range with investors