LIC share sale may fetch govt up to Rs 65,000 cr; DRHP filing likely today

LIC IPO: LIC could be valued between Rs 11 trillion and Rs 12 trillion

Insurance behemoth Life Insurance Corporation of India's (LIC's) initial public offering (IPO) could garner anywhere between Rs 60,000 crore and Rs 65,000, said people with direct knowledge of the development. At the time of writing, investment bankers were giving the final touches to the company’s draft red herring prospectus (DRHP), which is expected to be filed with the Securities and Exchange Board of India (Sebi) on Friday.

LIC’s IPO will be India’s largest-ever share sale, surpassing digital payments firm Paytm (One97 Communications), which raised Rs 18,300 crore in November. The offering will entirely be a secondary share sale by the government, which currently holds 100 per cent in the insurer.

LIC could be valued between Rs 11 trillion and Rs 12 trillion. The valuation will be decided closer to its IPO, said an investment banker handling the share sale.

“At the stage of DRHP filing, a company discloses either the amount it would mop up or shares it wants to sell. In the case of LIC, the government is aiming to raise between Rs 60,000 crore and Rs 65,000 crore. The stake that will be required to be diluted to raise this much amount will be decided at a later stage,” said the banker.

If investor feedback is good, the government will opt for minimum dilution that is required under the Sebi regulations, he added.

Under the revised norms, a company is required to dilute a minimum of Rs 10,000 crore (10 per cent) for market capitalisation up to Rs 1 trillion. For incremental market cap, the dilution is 5 per cent. Earlier, a company had to dilute – either by issuing fresh shares or by selling shares of existing investors to the public – a minimum of 10 per cent in the IPO.

Say, if LIC’s market cap works out to Rs 12 trillion, it would have had to dilute a minimum 10 per cent, or Rs 1.2 trillion, in the IPO. However, under the new rules introduced last year, it will have to disinvest a minimum of Rs 65,000 crore, 5.4 per cent stake, only.

Incidentally, the government has lowered the FY22 disinvestment target to Rs 78,000 crore from the initial projection of Rs 1.75 trillion. The Centre has so far mopped up about Rs 12,000 crore through disinvestment.

The final dilution will hinge on prevailing market sentiment and investor feedback from road shows. LIC has appointed as many as 16 investment banks to handle its share sale.

Before any IPO can hit the market, it is required to obtain clearance from the market regulator. Typically, Sebi takes more than a month to clear an IPO. However, LIC’s offer document is likely to be cleared within three weeks — the minimum time period for public comments on a DRHP.

LIC vs other players

LIC continues to be the largest player in the life insurance market. However, it has been losing market share to private players, who offer a diversified product mix and make use of strong distribution through bancassurance partners.

As of January 2022, LIC’s market share in new business premiums stood at 61.16 per cent compared with 66.18 per cent in April 2021.

LIC has traditionally been an agency-driven institution, with 1.33 million individual agents -- 55 per cent of the total individual agents in the industry. Lately, LIC, too, has been looking to diversify its distribution channels.

LIC has 72 bancassurance partners, comprising eight public sector banks, 42 co-operative banks, six private banks, 13 regional rural banks, and one foreign bank. It also has 175 alternative channel partners -- 44 insurance marketing firms, 59 brokers, and 72 corporate agents. Further, the insurance giant also boasts 3,463 micro insurance agents. Recently, it tied up with insurance aggregator Policybazaar.com for distribution of its products. This is LIC’s first association with an insurance aggregator, which otherwise relies heavily on its large agency force.

LIC’s assets under management (AUM) stood at Rs 38 trillion as of September 2021 compared with Rs 37 trillion in March 2021. Its AUM was almost three times the AUM of all the private life insurers in the country put together and over 15 times more than the AUM of the second-largest life insurer, SBI Life, as of September 2021. SBI Life’s AUM was about Rs 2.4 trillion as of September 2021.

LIC reported a net profit of Rs 1,437 crore in the first half of FY22 (April-September), compared to just Rs 6.14 crore in the year-ago period. The sharp jump in profit was aided by a 12 per cent rise in income from investments even as net premiums earned by the insurer reported a tepid growth. In FY21, LIC had reported a net profit of Rs 2,907 crore.