Market Walk

LIC IPO – How will the government sell a Rs.90,000 crore IPO to investors?

 

In the previous week, there has been a flurry of activity on the LIC IPO front. It now looks like the government will go all guns blazing to complete the LIC IPO in the current fiscal year itself. The DRHP is likely to be filed in last week of Jan-22 and the issue is slated for mid-March.

What we know about LIC IPO?

To be fair, we have to wait for the IPO price band and the embedded actuarial valuation to be arrived at by Milliman. But there are already some credible estimates out in the market. The LIC valuation is pegged at Rs.15 trillion or $203 billion. The government plans to raise Rs.90,000 crore by hiving off a 6-7% stake in LIC via the IPO. Obviously, the government will be heavily counting on the institutional investors to support the IPO to its logical full subscription.

How would that place LIC among Indian listed companies and global insurance majors?

In terms of market cap, LIC will become the second largest after RIL and it will be the most valuable financial services company in India. That is not too far-fetched considering its AUM is equal to the AUM of the entire Mutual Fund segment in India. How does LIC look when compared to global insurance majors? In terms of market cap, LIC will now become the second most valuable insurer in the world after United Health. It will pip Aetna, AXA, Travelers, AIA, Cigna and Allianz in value. That surely looks like top-dollar valuations for LIC.

Addressing the challenges

Even as LIC embarks on an aggressive valuation at the IPO, there are some key questions. Firstly, private life insurers have already gained 30% market share and they are growing faster than LIC. Also, quality of debt portfolio of LIC is still a source of concern. In other cases, like telecom and banking, PSU players have lagged their private counterparts in valuations. It is not clear whether the investors will be willing to pay such top dollar valuations for LIC at a time when the policy sales are going to be driven more by Fintech players. There are just too many internal questions for LIC.

Is there big IPO appetite?

The most important question is about the appetite for such a large IPO. The largest IPO till date was Paytm, which was one-fifth the size of the IPO that LIC is proposing. It is not yet clear if the global institutions are going to be really interested in a business which certainly has potential but where the underlying structure of the industry is changing. Also, most institutions have seen a huge capital depreciation in Paytm and they may be extra cautious about committing money to such mega IPOs. Things will become a lot clearer once the road shows start. Even with LIC’s massive policyholder base of 25 crore and over 1.2 million agents, it will be tough to sell a Rs.90,000 crore IPO. Government has to think absolutely out of the box!

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