LIC IPO: Issue subscribed 1.79 times on Day 5, policyholders portion booked 5.04 times, retail 1.59 times, employees 3.79 times, NIIs 1.24 times

The public issue of Life Insurance Corporation of India has subscribed 1.79 times till May 8, the fifth day of bidding. The offer has received bids for 29.07 crore equity shares against IPO size of 16.2 crore equity shares.

Policyholders remained at the fore as their reserved portion was subscribed 5.04 times, followed by employees who bid 3.79 times the allotted quota, and retail investors 1.59 times. Non-institutional investors have put in bids 1.24 times the portion set aside for them, while the portion reserved for qualified institutional buyers was subscribed 67 times.

• Under the IRDAI Investment Regulations, LIC is required to invest its investment assets forming part of its controlled fund incertain specified categories of assets and instruments, subject to thresholds prescribed for each category of investment. Given the prescribed limits on the way the company’s assets are held and in which its investments can be made, LIC may be unable tomitigate market risks, while making investments, in the same manner as non-insurance companies.
• The company faces limited liquidity risk due to the nature of its liabilities and business structure.
• Events such as changes in regulatory policies, volatility in capital markets, loss of customer confidence in the insurance industryor in the company, or sharp declines in its customers’ financial positions due to a severe deterioration in economic conditions,such as the economic deterioration caused by the COVID-19 pandemic, may cause discontinuations of its customers’ insurancepolicies.
• The strength of the brand ‘LIC’ could be adversely affected by changes in customers’ and market perceptions about thecompany, particularly in the insurance sector, where integrity, trust and customer confidence are paramount. LIC is exposed tothe risk that litigation, misconduct by its employees, agents or other distribution partners, operational failure and negativepublicity could harm its brand, reputation, customer trust and business

Capitalize on the growth opportunities in the Indian life insurance sector
Further diversify the product mix by increasing the contribution of the non-participating portfolio
Reinforce the omni-channel distribution network and increase its productivity
Continue leveraging technology to aid growth, drive operating efficiencies and provide digital support
Maximize value creation through various commercial and financial levers as well as changes to LIC’s surplus
distribution policy

Source: GEPL Capital, LIC IPO Note

Religare broking believes that the low free-float of LIC shares may push the prices higher. Given that the government is offloading only 3.5% of its 100%stake, the free-float would be low which could create demand-supply mismatch.

LIC IPO at 2.2 billion $ size is one of the world’s top ten most significant insurance IPOs to date. With other massive insurance and insure-tech IPOs like Policybazaar and Star Health, India has become a leader in the Insurance IPO market. Moreover, with major listed insurance players like LIC, General Insurance, New India, SBI Life, and HDFC Life, India is now a significant market for listed insurance players. What is also extremely attractive about the Indian insurance industry is that it is underpenetrated and multiplying for the massive Indian demographic. This critical size and growth prospect make Indian insurance a fairly attractive play.

Even post listing, the government will still be the major shareholder and the key manager. Thus any future government intervention might be detrimental to shareholders.The company has made plans to address the issues pertaining to the company like losing market share to private players, lower profitability and revenue growth, compared to private players, lower VNB margins, and short-term persistency ratios.
LIC is planning to take steps like increasing up-selling and cross-selling, increasing direct sales of their individual products on their website, designing products for the millennials, focusing more on non-par products, and protection-based products, and linked products.
Investors must be aware that the business of insurance is long-term in nature; therefore, we recommend this issue for the long-term only.

The state-run insurer invested Rs 12,221 crore in exchange-traded funds (ETFs) in the first six months of the current financial year, higher than the Rs 10,062 crore it invested in all of 2020-21.The quantum of funds invested in passive products has increased nearly four times over the past two and a half years. In 2018-19, LIC invested Rs 3,080 crore in ETFs.However, the share of investments in venture funds, mutual funds and ETFs was only at 0.78 percent of the overall assets of LIC as of September 30, 2021. The rise in LIC’s investments in ETFs comes alongside rising interest in such products by investors as well as the increased use by the government of ETFs to sell stake in state-owned enterprises.

Mortality protection gap represents the difference between the cover typically required by a family and the resources they have available should a wage-earner pass away suddenly.

Source: IIFL Securities IPO Note