MUMBAI: Lowering of size and valuation of the LIC IPO has made the offer “more attractive” for investors and was done keeping in mind the extant market situation and “strong demand” by domestic investors, said Tuhin Kanta Pandey, secretary DIPAM, answering queries on the reduction in the offer size and valuation. The issue will open on May 4 and close on May 9.
“The optimal size (of the offer) is dependent on the situation you’re in,” Pandey said, adding that, “not doing things is the easiest,” after being asked whether better timing for the offer wouldn’t have been more expedient.
Foreign institutional investors (FIIs) have sold shares worth $2.1 bn so far this month, after selling $5.4 bn in March amid Russia’s invasion on Ukraine and expectations of front loading of rate hikes in the US to rein in decadal high retail price inflation.
Against the February DRHP, the revised LIC offer size is 3.5% (`21,000 crore) with a price band of Rs 902-949 a share, valuing the company at Rs 6 lakh crore against the earlier size of 5% (Rs 67,500 crore), valuing the company at an estimated Rs 13.5lakh crore at the upper band of over Rs 2000 apiece.
On the lower price to the embedded value of 1.1 times compared to rivals like SBI Life, HDFC Life and ICICI Pru, Pandey said that, “over a period of time the multiple of the rivals would decline as their embedded values grew.” The embedded value is the present value of future profits, a key valuation metric in the life space.
The price to embedded value on a one year forward basis for SBI Life is 2.1x, HDFC Life at 2.6x and ICICI Pru Life at 1.2x, as per Religare Broking. However, LIC’s embedded value rose from Rs 95,700 crore at the end of FY21 to Rs 5.39 lakh crore at the end of H1FY22, post segregation of policy-holders funds. This was significantly larger than the embedded value of peers during the period under review, with SBI Life’s embedded value on effective tax rate basis at Rs 35,290 crore, HDFC Life’s Rs 28,703 crore and that of ICICI Pru Life’s at Rs 30,200 crore.
Pandey cited that in FY21 LIC had a 66% new business premium market share, ahead of SBI Life and HDFC Life, with a 7% market share each, and ICICI Pru Life’s 5%. New business premium is the premium earned from new policies in a particular year.
Based on assets under management also, LIC was ahead of its rivals, Pandey said, citing LIC’s $540 bn asset under management (AUM) as of end-December 2021, which was 15.6 times that of second-largest player SBI Life’s $34.6 bn, HDFC Life’s ($26.2 bn) and ICICI Pru Life’s $32bn.
Of the 22.13 crore shares on offer, a maximum of 50% would be allocated to qualified institutional buyers, 15% for non-institutional bidders and 35% for retail investors. Policy holders will get a discount of Rs 60 per share and retail and LIC employees will get a discount of Rs 45 a share each. This means if a retail investor is also a policyholder and an employee, she can bid under all three categories separately up to an aggregate Rs 6 lakh (Rs 2 lakh under each category net of discount).
Giant-in-waiting
AUM of $540 bn at Dec 2021 equal to 17% of India’s annualised GDP for FY22
Equity yield including unrealised gain stood at 172.2% for 9mFY22
22.13 crore shares on offer FIIs: 50% Non-institutional: 15% Retail: 35%
AUM at 1.1 times of Indian MF’s entire assets
Investment in equities stood at Rs 9.8 L cr as of Dec 2021