LIC IPO: Top 10 details investors are seeking from the prospectus

10 Feb 2022 , 08:42 AM

As the D-day for the mega Initial Public Offering (IPO) of Life Insurance Corporation (LIC) starts approaching, there is increased anticipation about the details. News reports are already speculating on various aspects of this big-ticket IPO.

Prior to the IPO filing, we bring you the top 10 questions which might be answered in the IPO prospectus and/or the IPO presentation.

1. Details around participation of LIC policyholders in the IPO

There has been a lot of buzz around this topic given that LIC has more than 25 crore policyholders. In comparison, the number of demat accounts in the country stand at ~8 crore. News reports suggest government is likely to offer 10% of the IPO to policyholders at a discounted price band.
 
In order to participate in the IPO, policyholders need to:

• Open a demat account, if they don’t already have one
• Link their PAN account to their LIC policy account

1. IPO size and other details

LIC IPO is part of the government’s disinvestment plan. There have been several speculations around the size of the IPO and the price band. Reports suggest that the government is looking to raise upto $12 billion from its stake sale in the IPO. These proceeds will enable the government to bring down the deficit gap of FY22. Investors will watch out for any major departure from these reports in terms of valuations, price band and stake offered via the IPO.

1. LIC’s market share movement over the past few years

Despite the high competitive intensity from its peers in the private sector, LIC continues to hold a dominant position in the Indian life insurance sector.

	Market share
Gross Written Premium	64.1%
New Business Premium	66.2%
Number of individual policies issued	74.6%
Number of group policies issued	81.1%

 
Investors would keenly watch out for more insights into the above numbers, key trends and the management’s strategy to expand them further.

1. Digital capabilities and future strategy at LIC

It is believed that because LIC is one of the largest employers in the country, it has been shying away from boosting its technology and digital capabilities. However, digitalization is becoming a major force and disruptor within the life insurance sector. Several leading private life insurers are focusing on constantly upping their digital edge. Policyholders too are incrementally using digital mediums to buy insurance policies and pay their premiums. In this backdrop, it will be interesting to understand if LIC is willing to embrace digitalization in the future.

1. Environment, Social and Governance (ESG) initiatives and key focus areas of the company

In the run up to the IPO, some news reports surfaced indicating that the government is seeking an ESG rating for LIC. This is important for two reasons — there has been significant increase in ESG-based investing in recent years. Second, given the scale of LIC’s operations and investments, it has the potential to make a sizeable impact through its ESG initiatives. Commentary around these aspects will thus be keenly awaited.

1. Embedded Value, Value of New Business, Value of New Business Margin and other key financial parameters

While LIC has been releasing its annual report and quarterly updates regularly; details around its Embedded Value, Value of New Business and other business parameters will help investors assess its financial performance vis-à-vis its listed peers. Management insights and commentaries into these metrics will also be watched out for.

1. Future business strategy

Very little is known about LIC’s future business strategy. However, every IPO-bound company is required to not just spell out but also explain its key strategies in the prospectus. Details around future business strategy are a key factor in the investment decision of prominent investors.

1. Capital allocation

Investors will keep a keen eye on a specific dividend policy that LIC would adopt after listing. Likewise, details around capital allocation across the various subsidiaries of LIC will also be a key monitorable — particularly LIC Housing Finance, IDBI Bank, among others.

1. Investment strategy

Historically, LIC has acted as investor of last resort to bail out several loss-making companies. This has been done as part of the government rules laid out for LIC. It will be interesting to note if LIC will continue this approach after becoming a listed entity.

1. Key risks to the business

A key risk for LIC is that it has to follow the rules and regulations laid out by the government, limiting its own capability to make independent decisions. Will this change after the IPO? Only time will tell. Investors would also watch out for other company-specific risks and the measures it has put in place to mitigate their impact.
 
 
Author of this article is Sheetal Agarwal, AVP-Content and Communication, IIFL