The demographical tailwinds with a moderate penetration of life insurance in India and a massive protection gap will fuel the Indian life insurance industry’s multi-decadal growth, says financial advisory firm Samco Securities.
LIC, being the market leader, both in terms of GWP and NBP, is poised to benefit from this growth opportunity, according to the firm.
“While the fact that LIC has been losing market share as well as its lower than industry VNB margins do instill apprehension, LIC has indicated its plans to improve the two,” it said.
The insurance behemoth aims to protect its market share through increased focus on bancassurance and enhancing direct sales of its products on its website.
“Further, by improving its share of non-participating products and protection plans, it aspires to improve its margins. The long term direction of LIC’s business and financial performance does hinge on good execution of these plans.”
From a valuation standpoint, at the upper band of the issue price, LIC is priced at 1.1x embedded value, which is at a significant discount to peers.
Given the attractive valuation, the downside from here seems limited.
“Further the fact that a discount has also been offered to retail investors is the cherry on the cake,” the note added.
Taking into account all these factors, the firm recommended a “subscribe” rating on this IPO.
The government has brought down the issue size from 5 per cent to 3.5 per cent.
“Listing of LIC is a part of long-term strategic vision of the government and will be of high value enhancing for the LIC in the long run,” said said Department of Investment and Public Asset Management (DIPAM) Secretary, Tuhin Kanta Pandey.
The current listing is the first step of long-term value creation for the LIC shareholders, Pandey said at a recent press conference.
The long-awaited Initial Public Offering (IPO) is likely to open for investors on Wednesday and will remain open to subscription till May 9.
It will be a landmark public issue in the history of the Indian capital market and is poised to be India’s biggest IPO till date.
The IPO values LIC at Rs 6 lakh crore.
The issue offer of the LIC will be in the price band of Rs 902 to Rs 949.
Also, the policyholders will be offered a Rs 60 discount, while for retail investors, the discount will be Rs 45.