LIC will be fifth most-valued firm post IPO with m-cap of Rs 6 trillion

Valuation fair and attractive; won't dilute stake for a year: Govt

Life Insurance Corporation of India (LIC) is launching the biggest initial public offering (IPO) in the history of the Indian capital market at about Rs 21,000 crore. The share sale, which opens on May 4, will make the insurer the fifth-largest listed company in the country with a market capitalisation of Rs 6.02 trillion, assuming the upper price band of Rs 949 a share. LIC has fixed the price band at Rs 902-949 per share for the IPO.

LIC will also become the fourth most valuable insurer globally — after Ping An Insurance of China, AIA Group, and China Life — and the fifth largest in terms of gross written premium.

“Even after the reduced size of about Rs 21,000 crore, the LIC IPO is going to be the biggest IPO ever in the country,” Tuhin Kanta Pandey, secretary, Department of Investment and Public Asset Management (DIPAM), said while addressing the media on Wednesday. The government has reduced the equity dilution size to 3.5 per cent from 5 per cent of its total holding.  

Among Indian life insurance companies, LIC will be the fourth insurer to get listed, and its market cap will be nearly six times the number two firm, HDFC Life Insurance, whose valuation stood at Rs 1.16 trillion as of Wednesday.

“The decision to list now has taken into account a combination of multiple factors, including market demand, which includes solid anchor book, stabilising market condition, reducing volatility, domestic flows, and corporation’s financial performance,” Pandey said.

“There is a fair amount of domestic demand and subdued demand from abroad. So, in this constrained environment that we have, it was important to take a call on the right size of the issue,” he said while explaining the rationale behind reducing the size of the IPO. “We have given our commitment that we are not bringing in any FPO in the next one year,” he added.

Yet, there are questions on LIC’s valuation. Initially, according to the draft red herring prospectus (DRHP), the government had planned to sell 5 per cent of its stake in the insurer and was expected to mop up around Rs 65,000 crore at a valuation of more than Rs 10 trillion. However, now the stake dilution has been reduced to 3.5 per cent, with the government raising around Rs 21000 crore – which valued the insurer at 1.1 times its embedded value (Rs 5.39 trillion).

“It's not fair to say that two months back there was a certain valuation,” Pandey said when asked how the valuation of LIC dropped in two months. “Those were guesstimates and people were speculating. The EV for LIC was discovered and revealed in the DRHP. Post the DRHP, analysts have gone into the numbers. There were hundreds of roadshows where the questions have been answered. The valuation process is essentially a discovering process because you don’t know what we are comparing LIC with,” he said.

‘Attractive’ valuation

Pandey said the valuation was fair and attractive. “It's important to make it attractive because the goal is to enable millions of Indians to participate in this process and increase their value as LIC unlocks itself.”

The initial plan for the government was to launch the IPO in March – before the end of the financial year 2021-22. However, the markets turned volatile following the Russian invasion of Ukraine. Emerging economy markets continue to remain choppy amid geopolitical tensions.

Pandey was confident that, with the help of anchor investors, LIC will be able to pull it off.

“We postponed the issue in March because we had this concern when volatility was very high… The reason we went down from 5 per cent to 3.5 per cent is, even if we have a little bit of a constrained environment, we can still pull it off because that’s the kind of demand scenario that exists. Also, there is an anchor book to support it,” he said.

Kotak Mahindra Capital, Axis Capital, BofA Securities, Citigroup Global Markets, and Goldman Sachs are some of the book-running lead managers for the issue.