LIC IPO Day 1: Strong opening with demand across segments

People walk past a bus shelter showing advertisement of country's largest insurer public, Life Insurance Corporation of India (LIC) in Mumbai Image: Sujit Jaiswal / AFP
 
The initial public offering (IPO) from the state insurance giant Life Insurance Corporation of India (LIC)—the largest such offering ever in India—opened strong on Day 1, with 62 percent of the issue subscribed by late afternoon on May 4. The policyholders’ portion of the book has been subscribed 1.8 times, employee reserve portion has been fully subscribed and retail investors around 55 percent.
 
This comes on a day when the BSE Sensex index tumbled 1,306 points or 2.29 percent to 55,669.03, after the Reserve Bank of India surprised investors with an out-of-cycle monetary policy repo rate hike, in a move to curb inflation.  
 

As per the revised issue size, the government will be selling 3.5 percent of its stake in LIC through the offer-for-sale (OFS). The price band of the near Rs21,000 crore issue, has been fixed at Rs 902 to Rs 949.
 
The government decided to delay the launch of the LIC IPO, planned earlier in Feb-March 2022. The concerns surrounding higher inflation, rise in input costs for several corporates and the Russia-Ukraine war, all started to hurt global and local equity markets. This had forced the government to do a rethink on LIC’s valuation and the issue price.
 
The LIC IPO has finally kicked off on May 4 during a crucial period, with inflation still high, foreign funds staying off emerging markets, and the sustained impact of the Russia-Ukraine war.
 
Analysts speaking to Forbes India on the first day of the IPO say the response has been positive. “The revised IPO was a good move to attract retail investors, in terms of the value multiplier and the IPO price band.  The velocity in demand from policy holders toward the issue is also fairly strong. By the end of the day this segment should be oversubscribed over 1.6x,” says Suvajit Ray, head, products at IIFL Securities.
 
Ray also expressed optimism over the demand from retail investors. “It is a healthy sign.” As with all large offerings, interest from the institutional investors is likely to emerge only over the last two days of the offering. Half the portion of the IPO is reserved for institutional investors, about 15 percent is for non-institutional investors and 35 percent for retail investors. The LIC issue will be open for subscription till May 9.
 
Venkatraghavan S, managing director and head, (equity capital markets) at Equirus calls LIC’s Day 1 performance as “exceptional” given the size of the offering. “With about 55 percent of the retail portion subscribed just on opening day is of significant interest. There is enough on the table for investors,” Venkatraghavan tells Forbes India. He expects the stock to fare well even during the choppy equity markets, “It is a must-own stock for institutional investors. ETFs [Exchange Traded Funds] will want to be part of the Indian insurance journey, so the interest in LIC will sustain.”
 
Dnyanada Vaidya, research analyst with Axis Securities, forecasts that after listing, “LIC would trade at attractive valuations as at the upper end of the price band, the stock would trade at around 1.1x market cap/EV (H1FY22 embedded value) compared to the industry average of around 3x.” Vaidya is confident that LIC will maintain its market leadership position, supported by “good business traction.” Furthermore, LIC intends to increase its share of high-margin non-par products to improve its margins, which will augur well for the company over the long term.
 
LIC is the fifth largest player globally in terms of the life insurance premium and 10th largest in terms of total assets. In 9MFY22, LIC’s new business premium (NBP) market share was 61.4 percent, around 1.6x the total private life insurance sector and 6.7x the NBP for the second-largest player in the Indian life insurance industry.