The LIC IPO – Everything you must know

The biggest and the most awaited IPO of the year is the Life Insurance Company of India (LIC) IPO. LIC is a market leader in its industry that offers fixed return plans along with life insurance. The company enjoys a massive customer trust in the country, built over 65 years. It will be, by far, the biggest IPO in the history of Indian stock markets. Given the buzz, it is expected that an unprecedented number of investors will apply for the IPO. This issue will likely have reserved portions in the listing for employees and LIC policyholders (customers). Today, online investing has made it easy to apply for an IPO.

A few simple steps and your IPO application will be completed. If you do not have an account, you can open Demat account online  to apply for the LIC IPO.

Key facts:

1. LIC is the market leader in the insurance industry with a whopping market share of more than 66% in terms of new business premium (NBP), a 64% market share in terms of premium.
2. This corresponds to an asset under management (AUM) of INR 39 lakh crore serviced via 2048 branches, 113 divisional offices, and 1554 satellite offices. This means, across the length and breadth of India, you will find a LIC service center and agent.
3. To give a perspective, the AUM of INR 39 lakh crore is more than the entire mutual fund industry put together.
4. LIC has 13.5 lakh registered agents who bring in most of the business.
5. The DRHP discloses the embedded value (EV) of LIC as INR 5,39,686 crore. EV is one of the most effective ways to come at a valuation for an insurer’s IPO. The EV can be calculated as a net worth (including capital) added to the total of the present value of all future profits from ongoing business.
6. The president of India is the promoter of the company, acting through the ministry of finance.

Something to note:

1. Insurance products are usually low-margin products.
2. LIC is a unique business model. The premiums cannot be recognized as revenues and while the payment is collected upfront, there is a promise to pay a fixed amount at a later date. This makes it very difficult to value the company.
3. Competition is intensifying in the market, which reflects in the urban areas where LIC has been losing its market share.
4. The Covid-19 pandemic remains a consistent risk for insurance companies that could adversely affect the business.

What products does LIC sell?

LIC sells various financial products tuned to the market needs. Some products are:

• Participating insurance products
• Non-participating products like
  • Unit-linked insurance products
  • Term insurance
  • Savings insurance
  • Health insurance
  • Annuity and Pension plans

IPO Details

While SEBI has given the go-ahead to the draft red herring prospectus (DRHP) filed with SEBI on 13th Feb, LIC has not officially declared the dates, price bands, reserved categories yet. The next step is to file an RHP document which will have all the details about reserved portions, dates, price band, lot size, etc. LIC and the government are likely waiting for the Russia-Ukraine war-induced volatility to calm down and then go ahead with the listing.