The much-awaited public offer by the Life Insurance Corporation Of India (LIC), which is expected to fetch the government around Rs 65,000 crore to Rs75,000 crore through the offer for sale (OFS), will create a large enough free float for the stock to be included in mainstream indices such as Nifty50, according to a 15 February report by UBS Global Research.
“LIC would be the third-largest stock in India by market cap, and the 32nd-largest by free float, ensuring an entry into mainstream indices, e.g., Nifty-50”, said a report by UBS Global Research dated 15th February. The government of India is selling a 5% stake in the insurer through an OFS.
The large share sale will test the market appetite at a time when the markets are volatile due to the Ukraine crisis, high crude prices, high US inflation and expected Fed rate hikes and so on.
Nevertheless, if it goes through, the listing may garner strong valuations, experts said.
LIC garners a large share of household savings which is expected to generate large investor interest. UBS data suggests that LIC maintains a lead over State Bank Of India deposits, which is the next largest destination for household savings in India.
LIC is the largest and oldest life insurer in India and has cornered much of the market share. But the company is seeing heightened competition from private insurers, who are also gaining market share. However, according to UBS, LIC has over 50% share of the industry agent pool and LIC agents have the highest productivity.
Analysts at Jefferies India Pvt Ltd in their report dated 16 February said that LIC accounts for over 60% of life insurance new premiums and 40% of retail APE (annual premium equivalent), "driven primarily by its industry-leading agency force of 1.34 million and it also has 72 banca partnerships”. A bancassurance partnership is an arrangement between a bank and an insurance company for the sale of policies.
Further, the strong earnings prospects are also not being adequately captured, feel analysts.
Analysts at Haitong Securities said that LIC’s true P&L (profit and loss) potential can be 10x of Its reported figure. The analysts argued that LIC reported a net profit of Rs2900 Crore in FY21 despite managing a very large AUM (Assets under Management) of Rs35 Lakh crore as of March’21. In their opinion, this reported net profit is 'highly understated' and does not capture the true earning potential of LIC.
