Applying for LIC IPO? 4 Crucial Things to Keep in Mind before Applying

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The much-awaited Initial Public Offer (IPO) of Life Insurance Corporation of India (LIC) is all set to open on May 4 and close on May 9. With this upcoming mega issue, LIC is set to launch one of the biggest initial public offerings in the history of the IPO market in India.

LIC was formed on September 1, 1956, by merging and nationalizing 245 life insurance companies in India with an initial capital of Rs 5 crores. Even though many life insurers have come up over the past few years, LIC continues to be a dominant market player. 

Due to the massive size of the IPO, retail investors are eagerly waiting for the LIC IPO. The ongoing Russia-Ukraine war and the consequent high market volatility had led to the postponement of the LIC IPO date, which was earlier supposed to come before March 31, 2022.

LIC filed the Draft Red Herring Prospectus (DRHP) in February this year and later went to tweak the size of the IPO. The insurer has tweaked its IPO size to 3.5% from 5%, fetching about Rs. 21,000 crores. The government will be offering 221,374,920 equity shares as an offer for sale in the IPO. LIC has fixed a price band of Rs. 902 per share at the lower end and Rs. 949 per share at the upper end.

The DRHP further mentions that LIC has a 64.1% market share in terms of premium and a 66.2% market share in terms of new business premium for the financial year 2021. This IPO is majorly important because its proceeds are expected to help the government meet its disinvestment target for the current fiscal at Rs 65,000 crore with the Rs 21,000 crore aimed to be raised from the LIC IPO not factored in as it had considered the proceeds from the public issue for FY22 divestment aims.

The floor price of the share is 90.2 times the face value of the equity shares, on the other hand, the cap price is 94.9 times the face value of equity shares. Bids can be made for a minimum of 15 equity shares and in multiples of 15 thereof. As per the draft filing, LIC mentioned that policyholders having one or more policies of the Corporation as on the date of the DRHP and Bid/Offer, Opening Date and are the residents of India would be eligible to apply in this Offer under the Policyholder Reservation portion.

Here are the 4 Crucial things to keep in mind before applying for the LIC IPO: -

1.   Discount over the Floor Price

As mentioned in the prospectus, employees and policyholders of the country’s largest insurer will be getting a discount over the floor price. The DRHP stated that the aggregate of reservations for the eligible policyholder(s) shall not exceed 10 percent of the offered size while the employee quota will be capped at 5 percent.

The quantum of potential discount will be specified closer to the bid opening date, at least two working days prior. The policyholders’ quota in the IPO was created after the central government permitted LIC to designate policyholders as one of the reserved categories, as per an amendment made last year to the LIC Act, 1956.

2.   Valuations Attractive at 1.1x EV

As reported by Economic Times, it is expected that the valuations will be around Rs. 13,00,000 crores. However now it will be around Rs 6,00,000 crores, it noted.

The publication further said, “With the embedded value at Rs 5,40,000 crores, the LIC IPO is likely valued at 1.1 times its embedded value. Private players are trading at around valuations of 2-3 times of embedded value. This Rs 6,00,000 crores LIC valuation looks lucrative," 

3.   Use of ASBA to Apply for the IPO

In its draft, LIC stated that "all potential Bidders (except Anchor Investors) are required to mandatorily utilize the Application Supported by Blocked Amount (“ASBA") process providing details of their respective ASBA Accounts, and UPI ID in case of RIBs, Eligible Employee(s) and Eligible Policyholder(s) Bidding using the UPI Mechanism, if applicable, in which the corresponding Bid Amounts will be blocked by the SCSBs or under the UPI Mechanism, as the case may be, to the extent of respective Bid Amounts."

4.   Financials of LIC

LIC has reported net profit for the nine months to December 2021 increased to Rs 1,671.57 crore from Rs 7.08 crore a year ago. In the first 9 months of FY22 (9MFY22), premiums of the insurer, which includes first-year premiums, renewal premiums and single premiums, totaled Rs 2.84 trillion, up 1.67% (YoY).

LIC IPO is going to be a significant milestone for the stock market and the economy. If everything goes as planned by LIC, it will be the biggest IPO, dethroning Paytm and will leave a huge impact on the market. Once listed, its market capitalization will be comparable to top companies in the stock market

So, hurry and open a free Demat account with mastertrust today to get going and apply for the LIC IPO!

Happy Investing!