LIC IPO – Positive and Negative Factors

LIC IPO – Positive and Negative FactorsLIC IPO – Positive and Negative Factors

LIC IPO would open for subscription 4th May, 2022. Couple of months back, everyone was negative about LIC IPO considering the high valuations. However, after Govt of India has reduced the valuations, it is being considered as a most valued IPO in the recent market. Even Anchor investor’s portion was oversubscribed now. What are the Positives and
Benefits of investing in LIC IPO ? What are the negative and risk factors in LIC IPO?

Also Read: LIC IPO Review – Should you invest or avoid?

About LIC IPO

Skip this section if you are already familiar about LIC.

LIC is the largest insurance provider in India. Currently its market share is 66.2% of the new business premium collection. Company has various products – life insurance plans, health insurance plan, insurance saving schemes, annuity plans, pension plans and ULIPs.

Currently LIC AUM is at Rs 39 Lac Crore. It operates over 2,050 branches, 113 divisional offices and 1,554 satellite offices. Beyond pan India, it also operates globally in Fiji, Mauritius, Bangladesh, Nepal, Singapore, Sri Lanka, Bahrain, Qatar, Kuwait, UAE and UK.

LIC IPO Details

LIC IPO would open for subscription on 4th May, 2022 and closes on 9th May, 2022. LIC IPO Price band is Rs 902 to Rs 949 per share.

Positive Factors in LIC IPO

Here are major positive things in this IPO.

1) LIC is the Leading Insurance Provider in India.

2) It is 5th largest global provider by GWP (Gross Written Premium — the total premium (direct and assumed) written by an insurer before deductions for reinsurance and ceding commissions. Includes additional and/or return premiums).

3) LIC has mix of insurance products across life insurance, health insurance, pension plans and ULIPs.

4) Company has generated strong revenue growth in the last 3 years.

5) LIC has strong margin growth from Rs 2,627 Crores in FY18-19 to Rs 2,974.1 Crores in FY20-21. For 9 months ended Dec-21, its profits are at Rs 1,715.3 Crores.

6) LIC manages Rs 39 Lac crores. The entire mutual fund industry AUM by end of Mar-2022 is Rs 37.5 Lac Crores. Means LIC manages portfolio, which is more than a combined portfolio of Indian mutual fund industry.

7) LIC investment portfolio is across stocks and bonds. Do you know that LIC owns 4% of all the listed stocks in India?

8) LIC keep making investments in stock markets for thousands of crores whenever the stock market is down. While it would provide support to stock markets during market crash, it earns handsome returns as it invests in lower level. During market crash in 2020, it earned 10,000 Crores profits in less than 6 months.

9) LIC has been competing with private insurance companies and improved the claim settlement ratio (CSR) in the last 5 years. Its CSR is 98.3% (FY2017), 98.04% (FY2018), 97.79% (FY2019), 96.7% (FY2020) and 98.62% (2021).

10) LIC Policy holders would get Rs 65 discount per share. They need to ensure they tick “policy holders” quota while applying.

11) Retail Investors and employees of LIC would get Rs 45 discount per share.

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Negative or Risk Factors in LIC IPO

Here are the major negative factors in this IPO.

1) This IPO contains only Offer for Sale which goes to Govt of India and nothing comes to company.

2) Insurance Policies are always sold at banks or with relatives getting involved and without explaining the underlying charges and returns. In the recent times, with so much awareness being created, people are (trying) to  understand the pros and cons of buying so called insurance-cum-saving schemes. With such increased awareness, there are chances that people would move more towards simple term insurance plans instead of insurance saving schemes. Such move can reduce the growth of the company in savings schemes segment.

3) Though LIC IPO valuations were reduced compared to initial discussions, the IPO price is still highly priced at P/E of 200x to 212x.

4) LIC new policy growth is poor compared to private insurance companies.

Investors should consider the benefits / pros / cons of investing in LIC IPO and then take a final call.

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Suresh KP

8 comments

  • SRSUBRAMANIAN

    I am getting errors message saying invalid UPI formate while registering for LIC IPO –
    Already raised complaint with sbicap but still they have not reverted back.

    To whom this issue to highlighted in LIC and SEBI, SBICARD

    • Don’t enter complete upi address. You should skip “@…” and enter only UPI before this and select from drop down. e.g. if my upi is sureshkp@okicici, I should enter only sureshkp and select “okicici” from drop down box. If you still have issue, you can raise complaint with stock broker directly.

  • Pramod

    Suresh ji,

    I want to know whether the price band of Rs.902-949 includes policy holder discount of Rs.60, I mean whether this discount is already deducted from the price band? So should one bid @949 only?

  • Kamal Garg

    I think there can be an endless discussion on the valuation parameters, like, PE and EV also. But being the largest life insurance company of India and anchor investors and other investors’ tremendous response, it makes sense to apply for the minimum applicable quota.

  • Subir Nag

    Your judgment regarding LIC IPO is very attractive to me. I want similar discussion on relevant IPO in this field. Thank u

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