LIC IPO | The stock investor's guide to navigate the DRHP

The blockbuster moment for India’s capital market is here. Just four months after One97 Communications broke the record for the biggest initial public offering in India’s history, Life Insurance Corporation of India is set to break it again as the life insurer filed its draft red herring prospectus on February 13.

The life insurer’s IPO will see the government sell 5 percent stake, or 316 million shares, in the insurance behemoth to the public.

That said, LIC is not an easy company to analyse given its myriad of assets, its complex distribution network and the cross holding it has across the public and private sector.

Here’s a guide for navigating your way into the 649-page long draft red herring prospectus of the insurance giant.

Summary of the issue

The non-numbered first and second page of DRHP carries the most important summary of the entire issue with respect to the amount of shares being sold or fresh equity being issued. It contains the identity of the existing investors who are selling their stake in the IPO and how many shares they are proposing to sell.

Further, any reservations in the IPO made for LIC’s employees or its policyholders will also be found this page. The company will also mention the risks in relation to the offer and general risks involved in participating in the IPO on this page.

Lastly the page will contain the names of the book running lead managers of the issue and the registrar of the issue.

Pages 1-22

These pages will contain the standard disclaimers on any forward-looking statements made by the company in the rest of the DRHP, certain abbreviations that investors should know and guide to how financial and market data are presented.

Pages 23-66

Contain the risk factors involved in participating in LIC’s public issue. These risk factors appraise prospective investors of the various causes and events that could harm the company’s business and its ability to remain as a ‘going concern’. This section is important for investors to have a firm understanding of the risks that the company deals with and the risks that industry in which the company operates faces.

Pages 67-105

On these pages you will be given a brief introduction to LIC, its industry, a summary of latest financial statements and the objectives of the issue. Investors will also learn the capital structure of the company and general information such as registered office address.

Page 106-299

The following pages will give you all the information you need to know Life Insurance Corporation. The history of the company, certain corporate matters, its management, its board, any group companies or subsidiaries LIC has and dividend policy.

Pages 300-503

These pages contain detailed tables of the three most important most important statements: profit and loss account, cash flow and balance sheet that will let the number do the talking in terms of introducing investors to LIC.

This section also contains the management’s discussion of LIC’s financial statements much like it is the case in annual reports of listed entities.

Pages 504-546

Under these pages, investors can skim through all the legal issues that the companies is entangled in such as outstanding litigations against it or those it has filed against others. Also, investors will learn about the various approvals government has granted the company for running its business and other regulatory disclosures it is required to make under SEBI rules.

Pages 547-578

These pages contain the information related to the public issue the company is proposing. Investors can find information related to the terms of the offer, the procedure to apply in the offer, and some guidelines on restrictions of foreign ownership in Indian securities.

Pages 579-581

Contain a brief introduction to certain provisions of the Life Insurance Corporation Act that company has set out for the public as important.

Pages 582-630

Perhaps, one of the most important and complex part of the DRHP. In the following pages, investors will learn about the core of LIC through the embedded value that has been submitted by the independent actuary to the company.

The report will provide details on LIC’s net worth, Value of In-force business, and Value of New Business. The auditor will likely suggest you to go through the report’s Reliance and Limitations section as well as read the report in conjunction with the rest of the DRHP.

Pages 631-649

This section contains information about several contracts that LIC has entered into or is about to enter that could be material for the company’s investors. These documents will be available for verification at the LIC’s Central office till the close of the issue.