The much-awaited initial public offering (IPO) of Life Insurance Corporation of India (LIC) will be launched on May 4. The government plans to raise Rs 20,557 crore through the issue by diluting 3.5 percent stake in the state-run insurance behemoth.
In an interview with CNBC TV-18, two industry veterans, Prithvi Haldea, MD of Prime Database, and Dipan Mehta of Elixir equities, talk about what retail investors should do and if the issue will be successful.
What is the state of the IPO market?
Prithvi Haldea: LIC IPO is the most momentous occasion in the Indian capital market. Companies typically do an IPO and then become big, but we now have a rare case where the company is extremely large and then doing an IPO.
In terms of an IPO launch, 2021 was one of the best years. Companies raised over Rs 1 lakh crore.
Large IPOs like LIC can typically change the mood of the market. There is never a bad time for a good investment. LIC IPO can be a great opportunity for investors to make money.
How will the IPO change the LIC itself?
Prithvi Haldea: In the past, PSUs that have gone for listing become leaner, fitter, meaner.
SEBI guidelines are pretty onerous in terms of LODR disclosures. The balance sheet will be discussed a lot. Governance standards also improve dramatically. LIC will be seen more keenly than before with a large number of shareholders.
How much fitter do companies become when they move from government corporations to listed entities?
Dipan Mehta: We have so many listed PSUs and yet the government uses them for its own policies and further its own interests. And many times at the detriment of minority shareholders.
LIC IPO looks like a great issue due to attractive valuations. LIC is a well-managed PSU. Despite the onslaught of private sector players, LIC has been able to hold its ground.
Why do valuations look attractive to you?
Dipan Mehta: First, they are offering it at 1.1x embedded value. Insurance companies cannot be valued at a price to earnings multiple. Globally, they are valued at a price to EV. LIC is coming at a significant discount.
LIC earnings are not going to be stagnant as the company is growing at the same pace as the insurance industry.
Also, there is considerable scope to improve the LIC earnings. At least 15% to 20% listing gains can be expected.
Your advice to retail investors?
Prithvi Haldea: Halving embedded value is a major consideration by the govt. LIC is a long-term story. Investors' money is always there for good issues like that of LIC. Given the valuation, LIC and the government should not concern about the response to the issue.
Do you expect it to be an oversubscribed issue?Dipen Mehta: Absolutely. Policyholders should apply for the LIC IPO. A very attractive discount has been given to the retail investors and the policyholders.