LIC IPO is heading towards its launch pad. Read a detailed analysis of the repercussions on the Indian markets and the finance sector as a whole. One of the biggest surprises of union budget 2020 was the Government’s decision to go for an initial public offer (IPO) of the state-owned ‘Insurance Mammoth’ LIC of India.
The government’s move has created a buzz in Dalal Street. When LIC of India, India’s most trusted insurer, and the all-time financial savior of the Government of India is going to hit the market, it is a big story.
Believe it or not, it is also going to be the biggest IPO ever seen by the Indian market. The rough estimates of valuation done by analysts vary between ₹ 8 lakh crores to ₹ 11 lakh crores. Considering the government sells 10% of its stake, the IPO size can be expected to range between ₹80,000 to 1 lakh crore.
Table of Contents
Why LIC is going public?
LIC’s disinvestment is expected to benefit the Government to concentrate on critical economic aspects of India and bridging the gap of fiscal deficit.
LIC of India - A closer look
Life Insurance Corporation of India (abbreviated as LIC) is an Indian state-owned insurance group and investment corporation owned by the Government of India. When it comes to life insurance in India, LIC is the most trusted name. It is the only insurer backed by the sovereign guarantee of the Government of India, which in turn ensures that the policyholder’s funds are completely secure.
The Life Insurance Corporation of India was founded on September 1, 1956, when the Parliament of India passed the Life Insurance of India Act that nationalized the insurance industry in India. Over 245 insurance companies and provident societies were merged to create the state-owned Life Insurance Corporation of India. The Company provides life, pension, health, and micro-insurance products and services to its customers in India.
Valued at $7.2 billion, the country’s largest insurer, the Life Insurance Corporation of India (LIC) became the 2nd most valuable brand in India in 2019 among the 100 most valuable brands by UK-based Brand Finance, as per a Business Standard report.
LIC provides financial protection to the insured through their policies. Collected premia are invested in bonds, mutual funds, equities, and several other investment instruments. The interest earned and returns obtained on investments is used to pay the compensation and maturity amount to insured people or policyholders.
LIC shares its profits to the policyholders in the form of bonuses. Simple reversionary bonus and the final additional bonus examples of bonuses offered by LIC.
LIC of India - The Big picture
Ever since it’s creation, Life Insurance Corporation of India, which commanded a monopoly of soliciting and selling life insurance in India, created huge surpluses and by 2006 was contributing around 7% of India’s GDP.
As of 2019, Life Insurance Corporation of India had a total life fund of ₹28.3 trillion. The total value of sold policies in the year 2018-19 is ₹21.4 million. Life Insurance Corporation of India settled 26 million claims in 2018–19. It has 290 million policyholders.
Today LIC functions with 2048 fully computerized branch offices, 8 zonal offices, around 113 divisional offices, 2,048 branches, and 1408 satellite offices and the Central Office. it also has 73 customer zones and 25 metro-area service hubs located in different cities and towns of India. It also has a network of 1,537,064 individual agents, 342 Corporate Agents, 109 Referral Agents, 114 Brokers, and 42 Banks for soliciting life insurance business from the public.
Now LIC also has the 1899 branches of IDBI bank at its disposal thus it can carry out its insurance business through these branches of the bank.
Major subsidiaries of LIC of India
The major subsidiaries of LIC are
- LIC Housing Finance (Listed on Indexes)
- LIC Pension Fund Ltd.
- LIC International
- LIC Cards Services
- LIC Mutual Fund
- IDBI Bank (Listed on Indexes)
LIC IPO - The mother of all IPO's?
According to an industry expert, if LIC gets listed on exchanges, it would become India’s largest company by market capitalization. And it will overtake the likes of Reliance Industries and Tata Consultancy Services.
The insurer enjoys a market share of 76.28 percent in the number of policies and 71 percent in first-year premiums.
LIC has been investing the premium received in almost all sectors of the economy, viz, public sector, private sector, co-operative sector, Joint Sector, and now it is one of the biggest term-lending institutions in the country also. LIC was established to spread the message of Life Insurance in the country and mobilize people’s savings for nation-building activities and undoubtedly it has lived up to the expectations so far.
LIC has also entered the international insurance market and has its offices in England, Mauritius, and Fiji
Other Activities of LIC of India
Other than being a major player in the insurance industry. It has been a heavy hitter in the securities market. The LIC subscribes to and underwrites the shares, bonds, and debentures of several financial corporations and companies and grants term-loans. It maintains a relationship with other financial institutions such as IDBI, UTI, IFCI, etc. for the coordination of its investment.
LIC is a powerful factor in the securities market in India. It subscribes to the share capital of companies, both preference and equity, and also to debentures and bonds. Its shareholding extends to a majority of large and medium-sized non-financial companies and is significant in size.
It is no doubt to say that the LIC acts as a kind of downward stabilizer of the share market, as the continuous inflow of fresh funds enables it to buy whenever the market is weak.
What do the numbers tell you?
Life Insurance Corporation of India (LIC), the country’s largest financial institution with a corpus of over Rs 31 lakh crore, has booked a profit of over Rs 14,000 crore from the stock market during the April 1 to November 15 period of the current financial year.
- Shri. M. R. Kumar Chairman, LIC of India
- Shri. T.C. Suseel Kumar Managing Director, LIC of India
- Shri. Vipin Anand Managing Director, LIC of India
- Shri. Mukesh Kumar Gupta Managing Director, LIC of India
Past performance can be considered as the testimonials of the quality of management of LIC. LIC was also able to turn IDBI Bank which was in a loss continuously to a profit, with IDBI bank reporting a standalone net profit of ₹144.43 crores for the June quarter of 2020-21 financial year. The private sector bank posted a net loss of ₹3,800.84 crores for April-June 2019-20. In the preceding March quarter, the bank logged a profit of ₹135.39 crores.
LIC of India - the Investment giant
Being the largest domestic institutional investor of the country, LIC’s Portfolio has assets over 30 lakh crores. Holds shares across 10+ sectors, holds stocks in 70% of shares in the Nifty 50 and so on.
LIC saw a 291 percent jump in its income from investment in a 10-year period between FY09 and FY19. Data from the LIC Annual Report 2018-19 released last week showed that the income from investments stood at Rs 2,21,573.72 crore at the end of FY19. Despite the tough market conditions, the investment income rose from Rs 2.08 lakh crore a year ago
Lic has a holding in most of the prominent players in banking such as HDFC Bank, ICICI Bank, SBI, etc. LIC also holds a stake in all major PSU s of India like BHEL, CDSL, etc. IT also shows it’s presence in the IT sector and energy sector as an investor by holding a stake in the big names of the industry like infy, TCS, etc. It also has a stake in conglomerates such as RELIANCE, LT, Piramal, Grasim, ITC, etc.
In short, LIC holds the major names across all sectors of the market.
What are the risks involved in LIC IPO?
Even though Lic has excellent fundamentals, The rising exposure of LIC to companies facing liquidity crisis has been a cause of concern. While the insurer has adequate assets to manage the bad debt, a rise in provisions could also affect the overall balance sheet.
The final word:-The LIC’s IPO will not only be a big bang in the market but also is likely to help in bringing transparency to its working.