LIC IPO | LIC issue size could range from Rs 53,500 crore to Rs 93,625 crore; issue price may be Rs 1,693-2,962 per share

A range of embedded value multiple between 2-3.5 throws up a valuation for the corporation ranging from Rs 10.7 lakh crore to Rs 18.7 lakh crore. Based on the total equity capital of 632 crore share, the issue size for a 5% offer for sale works out to Rs 53,500 crore to Rs 93,625 crore.

The per share price thus works out to Rs 1693 to Rs 2962. Against this, the government’s average cost of acquisition of shares stood at Rs 0.16 as LIC went through a capital rejig ahead of the IPO.

LIC’s initial capital, when it was incorporated, was Rs 100 crore. Since LIC was a collective, and not envisaged as a public limited company, there were no shares allotted. To transform the corporation into a corporate structure with shareholders ahead of the public issue, the original capital of Rs 100 crore infused by the government during the inception of the corporation was converted into share capital by allotting shares of face value Rs 10 for an equivalent amount.

In September 2021, the corporation then allotted an additional 62.24 crore equity shares at the same face value against the free reserves outstanding in LIC's book as on March 31, 2020.

Then again, another 560 crore equity shares of the same face value was allotted against the retained share of surplus of the government of India for fiscal years 2020 and 2021. LIC’s total capital now stands at Rs 6,324 crore.

LIC’s valuation at 2.5 times embedded value corroborates with the government’s pared down target for disinvestments for FY22. This appears to be in line with what big institutional investors may be willing to pay for a company that will continue to be pre-dominantly owned by the government. The government revised its disinvestment target for the current fiscal to Rs 78,000 crore, of which Rs 12,000-odd has been garnered so far during the fiscal.

Besides, the muted expectations on the valuation LIC and the proposed issue size has to be viewed in the light of the current state of market where foreign investors have been continuously selling. A large issue size only means more selling from domestic mutual funds that would want to sell down existing position to make room for allocation to LIC, fuelling additional volatility in the market.