On Monday, the anchor issue of Life Insurance Corporation (LIC) was off to a good start. Monday, being the first day of the subscription, it was a good sign for the upcoming QIB and the public offer which opens for subscription on May 4.
Oversubscribed Anchor Portion
Out of a total offer size of Rs 21,000 crore, for anchor investors it was locked at Rs 5,630 crore. However the anchor investor’s portion was oversubscribed as it received bids in access of Rs 7,000 crore.
The company has reserved 59.3 million shares for anchor investors.
On May 4, the IPO of the state owned insurer will open for subscription and close on May 9.
Canada Pension Plan Investment Board, Blackrock Global, GICPT, Nomura, Fidelity Funds, Goldman Sachs, Abu Dhabi Investment Authority and SBI Mutual Funds are the investors that investors likely to have bid for.
It is in the QIB portion that the investors could invest, who could not get allotment in the anchor category. Investors who will not get an allotment can bid for the QIB portion.
The Price Band For LIC IPO
For the LIC IPO, the price band is set between Rs 902 to Rs 949 per share. A discount of Rs 60 per share can be availed by the LIC policyholders. The retail investors and the employees will get a discount of Rs 45 per share.
Under the Policyholder Reservation Portion, as per the DRHP filed with SEBI, LIC will reserve up to 10 per cent for its LIC policyholders
According to Yash Gupta- Equity Research Analyst, Angel One Ltd, at the offer band, the LIC IPO is valued at a Price/Embedded value of 1.06-1.1 of its September 2021 EV of Rs 539,686 crore which is at a significant discount to listed private life insurance companies which trade at P/EV of 2.5-3.9x their December 2021 EV. While HDFC Life Insurance is trading at a P/EV of 3.9x SBI Life and ICICI Pru Life trade at 3.2x and 2.5x their December 21 embedded value.
Due to higher share of participation & group product, investors need to keep in mind that LIC has a lower VBN margin of 9.9% in FY2021 as compared to private players who have VNB margins of 22-27% and LIC valuations appear to be cheap as compared to listed private players.
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