LIC IPO grey market premium doubles to average Rs 75

Grey market is an unofficial market to trade IPO applications and shares before listing of the stock. It gives an indication of the appetite for the IPO by retail investors.
Life Insurance Corporation. (File photo)
Life Insurance Corporation. (File photo)

MUMBAI: Retail and high-networth individual (HNI) demand for the LIC IPO, the largest to-date in the Indian market, seems robust, going by the doubling of the grey market premium (GMP) from a week ago to an average Rs 75 on Monday, analysts told The New Indian Express.

Grey market is an unofficial market to trade IPO applications and shares before listing of the stock. It gives an indication of the appetite for the IPO by retail investors. "At the upper band of Rs 949 for the price range, the trade in the grey market happened at Rs 1,024 apiece on average," said Sunil Pachisia, director, institutional sales, Pratibhuti Vinihit.

Another broker confirmed on condition of anonymity that the premium had doubled to Rs 70-75 on May 2 from Rs 30-35 on April 27, when the finance ministry released details like price band and investor quotas. LIC is likely to list on May 17."There seems to be good appetite among retail and HNI category as per the grey market trades," Pachisia added.

Against the February DRHP, the revised offer size is 3.5 per cent (Rs 21,000 cr) with a price band of Rs 902-949 a share, valuing the firm at Rs 6 lakh crore against the earlier size of 5 per cent (Rs 67,500 cr), valuing the firm at an estimated Rs 13.5 lakh crore at the upper band of over Rs 2,000 apiece.

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Retail shareholders and employees can avail of Rs 45 per share discount while policyholders are eligible for a Rs 60 discount. Brokerages have advised a "subscribe" to the IPO.

Religare Broking, which has advised investors to subscribe for the issue, terms the valuation "reasonable" at the upper band of Rs 949, the price-to-embedded value is 1.1 times against 4 x P/EV for HDFC Life, 3 x for SBI Life and 2.5 x for ICICI Pru Life. "The valuation seems reasonable given it is the largest player in the industry and has a strong customer base," says the Religare note.

Geojit notes that LIC's market share (based on premium) in group business fell from 81 per cent in FY16 to 74 per cent in Q3FY22, while in individual business, fell from 56 per cent to 43 per cent. Due to higher mix of non-linked and participating policies, LIC has lower margin of 9.9 per cent as of FY21 compared to private players in a range of 20-25 per cent.

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