LIC IPO: Analysts are concerned about the dropping market share but recommend subscribing to the IPO due to cheap valuation
- The IPO of the life insurance behemoth will finally open on May 4 and will close on May 9.
- The price band of the IPO is fixed at ₹902-₹949 per share, which most analysts believe is low compared to other players.
- The insurer’s premium in the grey market has increased to ₹85 per share.
AdvertisementState-owned insurance behemoth Life Insurance Corporation of India (LIC) is finally about to launch its initial public offering (IPO) this week on May 4 after a long waiting period.
Here are the answers to all your questions asking if one should subscribe to the IPO or not.
Most analysts have recommended subscribing to the IPO on cheap valuation and because of the fact that it is a market leader in the fast growing and underpenetrated Indian life insurance sector.
“Though there are concerns over LIC regarding market share loss in individual insurance business and historically lower margins, we believe that valuations factor in most of the negatives. Expected improvements in product mix and greater transfer of surplus to shareholders account over the coming years are expected to drive profits from current low levels, which along with cheap valuations provide comfort,” said analysts at Angel one while suggesting retail investors to subscribe to the IPO with special discounts.
|Investmentz||Subscribe from long term perspective|
The IPO is entirely an offer for sale by the government that is looking to raise ₹21,000 crore by selling 22.13 crore shares in the company.
A special discount of ₹45 is being offered to retail investors and employees of LIC. And a discount of ₹60 per share is being offered to about 30 crore policyholders associated with the life insurer.
Life Insurance corporation of India (LIC) is the largest insurance player in India and has a market share of more than 60% in total premium, however, its losing market share gradually over the years to small and newest players.
Analysts believe LIC is significantly lower valued than other listed private players despite being the dominant player. LIC’s price band is fixed at ₹902-₹949.
Although analysts are concerned about losing market share they believe LIC’s large distribution channel will keep it at the top.
|Listed life Insurance companies||Share price as of May 2|
|SBI Life Insurance||₹1,080|
|HDFC Life Insurance||₹579|
|ICICI Prudential Life Insurance||₹517|
“There are concerns about losing market share to private players and having lower profitability and revenue growth when compared to private players. However, we believe that LIC’s distribution advantage, increasing sales mix of direct and corporate channels, and a gradual shift to high margin non-participating products could be possible drivers for LIC’s future growth, negating lower than industry growth rates,” said analysts at Investmentz, an online investment platform.
LIC has the largest individual agent network of 8.96 lakh, which dropped from 10.86 lakh as of March 31, 2021.
|Life insurers||FY21 market share in total premium|
|ICICI Prudential Life||5.60%|
|Bajaj Allianz Life||2.30%|
And individual agents bring 96% of new business premiums to the life insurer, however things have changed in the last few years because of the pandemic.
The number of active individual agents at LIC dropped by 17.48% to 8.96 lakh as of September 30, 2021 from 10.86 lakh as of March 31, 2021.
Analysts feel if LIC is unable to retain agents, who bring huge business to the firm, the insurer could face challenges in operating.
“LIC has lower new policy growth rate as they continue losing market share to private insurance players, especially in urban areas. Individual agents procure most of LIC’s individual new business premiums (close to 97%). If LIC is unable to retain and recruit individual agents on a timely basis and at reasonable cost, there could be a material adverse effect on their results of operations,” said a report by Investmentz.
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