LIC IPO: Market cap of India’s biggest insurer likely to hit $293 billion after listing

The Securities and Exchange Board of India's February 2021 tweak of IPO rules allows large companies to sell less than 10 percent of their stake through a public issue as long minimum public holding went up to 10 percent within two years and to 25 percent in five years of listing.

That said, the revised estimate for disinvestment proceeds in the Budget 2022-23 has been pegged at Rs 78,000 crore for 2021-22. The government has so far raised around Rs 12,000 crore, implying that it will make up the deficit of Rs 66,000 crore from the stake sale in LIC.

If indeed the government aims to raise Rs 66,000 crore via a 5 percent stake sale in the IPO that will put the IPO-bound company's market capitalisation at roughly Rs 13.2 lakh crore.

“LIC IPO plans are going fine. It should happen this year itself. Money from LIC IPO will come this year itself,” Finance Minister Nirmala Sitharaman had told Network 18 in an exclusive interview on February 2.

Currently, HDFC Life Insurance trades at 4.1 times P/EV based on its estimated embedded value for the current financial year. Similarly, SBI Life Insurance trades at 3 times P/EV and ICICI Prudential Life Insurance is available at 2.6 P/EV.

At current valuation multiples of listed peers, LIC’s market capitalization could be in the range of Rs 14.03 lakh crore to Rs 22.12 lakh crore. The valuation will put LIC ahead of global peers like China’s Ping An Insurance and China Life Insurance, Hong Kong-listed AIA Group and US-listed Metlife, who are valued at $57 billion to $149 billion.

“Ideally, LIC should get a premium over all the listed players,” said Amit Kumar Gupta, a portfolio adviser at Adroit Financial Services.

LIC’s likely premium to currently listed players will be based on its dominant position in India’s life insurance market with a more than 65 percent market share and the overall growth potential of India’s life insurance space.

The life insurer’s latest move to expand its online footprint through tie-up with PolicyBazaar will further enhance its ability to prize away market share from peers.

If the government does bring LIC to the public market at valuation of close to Rs 13.2 lakh crore, it would suggest that it is leaving considerable value on the table for investors.

“Somebody may have suggested them to sell around 5 percent and let the market decide the valuation and then sell some stake every year,” Gupta said. Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.