LIC IPO opens for subscription on 4 May 2022 and is scheduled to close on 9 May 2022. Like always, IPO Central is ready with its analysis of the upcoming IPO. Read on more for full LIC IPO review.
LIC is India’s largest life insurer with a 64.1% market share in terms of Gross Written Premium (GWP), a 66.2% market share in terms of New Business Premium (NBP), a 74.6% market share in terms of number of individual policies issued, an 81.1% market share in terms of number of group policies issued for Fiscal 2021, as well as by the number of individual agents (1.35 million), which comprised 55% of all individual agents in India as at March 31, 2021.
LIC IPO Review – Strengths
- Fifth largest life insurer globally by GWP and the largest player in the fast growing and underpenetrated Indian life insurance sector
- Trusted brand and a customer-centric business model
- Cross-cyclical product mix that caters to diverse consumer needs and an individual product portfolio that is dominated by participating life insurance policies
- Presence across India through an omni-channel distribution network with an unparalleled agency force
- Harnessing technology capabilities to support customer connect and drive operating efficiencies
- Largest asset manager in India with an established track record of financial performance and profitable growth
- Highest RoNW amongst other listed players in India in the same industry
- Robust risk management framework
- Highly experienced and qualified management team
LIC IPO Analysis – Risk Factors
- LIC is governed by the Life Insurance Corporation Act and it is not subject to the Companies Act. Accordingly, shareholders of LIC have less rights as compared with the shareholders of a company under the Companies Act.
- Majority (96.2% as on 31 December 2021) of new business premiums come from individual agents
- Significant complexity and estimates and assumptions involved in embedded value calculations. If key assumptions are changed, Embedded Value could vary materially.
- LIC is Domestic Systemically Important Insurer and a financial conglomerate, which subjects it to enhanced regulatory supervision measures.
LIC IPO Analysis – Financial Performance
| Â | FY2019 | FY2020 | FY2021 | 9M FY2022 |
| Total Income | 570,809.6 | 645,605.5 | 703,709.4 | 512,279.2 |
| Surplus | (2,416.1) | (10,148.9) | 3,861.8 | 1,642.8 |
| Transfer to Shareholders’ Account | 2,599.5 | 2,695.5 | 2,962.6 | 1,637.8 |
| Profit After Tax | 2,627.4 | 2,710.5 | 2,974.1 | 1,715.3 |
LIC Valuations & Margins
| FY2019 | FY2020 | FY2021 | 9M FY2022 | |
| EPS | 4.15 | 4.29 | 4.70 | 2.71 |
| PE ratio | – | – | – | – |
| RONW (%) | 322.25 | 317.14 | 45.65 | 20.84 |
| ROCE (%) | – | – | – | – |
| EBITDA (%) | – | – | – | – |
| Debt/Equity | – | – | – | – |
| NAV | 1.29 | 1.35 | 10.30 | 13.01 |
LIC IPO Review – Should you invest?
As the LIC brand is well known, IPO Central shall dive directly into positives, negatives and valuations in LIC IPO analysis. Prominent factors among the positives are all about the scale of the company’s operations. It is simply the biggest life insurance player in the country and accordingly, it tops several other parameters such as Gross Written Premium (GWP), New Business Premium (NBP), number of individual and group policies. It also has the biggest agent network, comprising 55% of all individual agents in India as at 31 December 2021.
It also helps that the market is still underpenetrated, offering excellent growth opportunities to not just LIC but every other company. LIC is a trusted brand and this reflects in its numbers and being an insurance major with a long operating history, it can be safely assumed that the company has a robust risk management framework in place.
Coming to negatives, it is well known that the company has survived (and thrived) purely on mis-selling and the endowment policies it sells through its agents don’t serve the basic objective of offering life cover. This has allowed its competitors to make inroads in the market and LIC is steadily losing market share. For FY2019, FY2020, FY2021 and the nine months of FY2022, its market share stood at 66.4%, 66.2%, 64.1% and 61.6%, respectively, in terms of total premium in the Indian life insurance sector. Sample this from the RHP
From Fiscal 2016 to Fiscal 2021, the total premium for life insurance private sector players in the life insurance industry in India increased at a CAGR of 18% while our Corporation’s total premium in India increased at a CAGR of 9% for the same period.
So, the company is losing market share but is still able to post revenue growth since the industry is growing and there is little to suggest that this growth is coming to an end anytime soon. Make no mistake, LIC’s AUM as of 31 March 2021 was still more than three times higher than total AUM of all private life insurers in India.
Another positive aspect is that the company boasts of an optimized cost structure that is better than its competitors (remember, over 96% of new business premium comes from agents which is effectively free of fixed cost). As a result, its total costs stood at 14.2% of total premium during FY2021, better than 15.1% for the industry and 16.9% for private players.
Valuation wise, there was some unease on the street regarding pricing but the same has been addressed by the twin measures of reducing the offer’s pricing as well as the size. At a Price to Embedded Value (EV) ratio of 1.1 as of September 2021, there isn’t much of downside considering that its peers trade at multiples of 2.5 (ICICI Prudential), 3.96 (HDFC Life Insurance), 3.77 (SBI Life Insurance).
LIC IPO review indicates that the offer is a mixed bag. There are some headwinds but the same appear to have been addressed adequately by the company and the market’s positive structure. The same is visible in the recovering grey market premium of the IPO, although it isn’t very strong yet.
LIC IPO Review – Broker Calls
Angel One – Subscribe
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Share India Securities –
SMC Global – 2.5/5
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