LIC IPO: What to expect from India’s largest IPO

The insurance industry is particularly difficult to value. Because there are just six publicly-traded insurance firms in India, understanding of the terminology and conditions is still developing. Retail investors who have their eyes and hearts set on the Life Insurance Corporation of India’s mammoth initial public issue, which is expected to reach the markets in March, should study the fundamental characteristics. It has thrilled many policyholders who have been long-term clients of LIC. It is dubbed as the mother of all IPOs, with an issue size of Rs 1-lakh crore, according to some estimates.

Many will be first-time stock investors who have little or no experience with equities and IPO investment, much alone valuing insurance businesses. When compared to other businesses, most terminology used in the insurance area is less well-known. Parameters like interest rates and Net Interest Margin (NIM) are well-understood by banks, for example.

Premiums account for a significant portion

The valuation procedure used by insurers differs greatly from that used by other sectors. The most significant distinction is that valuation necessitates the forecast of future cash flows from the current book. In contrast to other businesses, the profit created from a single sale is recognised over a lengthy period of time, which might vary from one year to 100 years depending on the kind of services provided to the customers.

Share of the market

LIC maintains the market leader by a wide margin, with a market share of over 61 percent in new business premium collections, but the decline calls for prudence. For investors to gain from participating in the LIC IPO, the massive market must continue to expand and maintain itself. It would be interesting to see whether it can entice millennials who prefer to acquire insurance via new-age channels. Keep an eye on the annualized premium equivalent (APE) increase. APE is the sum of regular, annualized premiums generated from a new business during a given period plus 10% of new single premiums collected during that time.

Combination of products

Product categories have an influence on VNB margins and are therefore important to consider when analyzing a company’s operations. VNB margins are often greater in protection plans (mainly term plans), followed by ULIPs. As a result, a growth in the percentage of protection plans sold by a life insurance business is a good sign. People are becoming more aware of the need for protective measures as a result of the pandemic, which has already driven up demand. Once the epidemic has passed, this tendency is expected to continue with increasing force.

Frequently Asked Questions (FAQs)

Q1. When will the LIC IPO happen?

Due to the pandemic, the IPO debut was delayed, but the post-pandemic administration would resume the process in full force. There have been no formal dates declared yet, therefore no one knows the IPO debut dates until the pre-IPO step is done.

Q2. What will the lot size of the LIC IPO be?

According to reports, the Indian government would not sell more than 10% of its LIC holdings. According to several experts and analysts, the value would rise to between Rs. 8 lakh crores and Rs. 11 lakh crores. However, given these are merely estimations, we must all wait for information from official sources.

Q3. What is the LIC’s market value?

Experts believe that the value of LIC might range from Rs. 8 lakhs to Rs. 11 lakhs crores. Nothing is official, and given the company’s scale, identifying the true worth of LIC will be difficult.

Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.