LIC IPO: The market capitalization of Life Insurance Corporation of India (LIC) has the potential to reach $272 billion after its listing. This is indicated by looking at the current valuation multiple of life insurance companies listed in the Indian stock market.
At this valuation, LIC will be the largest listed life insurance company in the world. On the other hand, looking only as an insurance company, it will be the second largest listed insurance company in the world. In addition, its market capitalization will be the largest in India, exceeding Reliance Industries’ nearly $210 billion valuation.
Earlier this week, Reuters and CNBC-TV18 reported that the embedded value of this state-run insurance company is likely to be around Rs 5 lakh crore. Moneycontrol could not independently confirm the news.
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Earlier in January, Bloomberg had told in a report that the government may insist on valuing LIC at $ 203 billion. At this valuation, LIC will be valued at 3.05 times the Price-to-Embedded Value (P/EV), which will be at par with SBI Life Insurance, another state-owned insurer.
Presently, HDFC Life Insurance is trading at 4.1 times P/EV based on the estimated embedded value of the current financial year. Similarly, SBI Life Insurance trades at 3 times P/EV and ICICI Prudential Life Insurance is available at 2.6 P/EV.
Looking at the current valuation multiple of these listed peers, LIC’s market capitalization could be in the range of $172.9 billion to $272 billion. With this valuation, LIC will overtake many of its global peers, mainly Ping An Insurance and China Life Insurance of China, Listing AIA Group in Hong Kong, US Includes listed Metlife, whose valuations range from $57 billion to $149 billion.
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“Ideally, LIC should be listed at a premium to its listed peers,” said Amit Kumar Gupta of Adroit Financial Services, a portfolio advisory firm.
LIC dominates the life insurance market in India and has a market share of around 65 per cent. In such a situation, LIC is expected to get premium valuation based on its dominant position and the growth prospects in the insurance sector of the country in the coming times.
LIC has joined hands with online insurance selling platform Policybazaar a day ago to expand its presence in the online market and increase the reach of its insurance products. This is expected to further increase the market share of LIC.
If the government brings the valuation of LIC to the stock market by keeping the valuation of LIC at a multiple of SBI Life and not at a premium, it would mean that the government is leaving some scope for investors.
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At a valuation of $ 203 billion, the government can raise up to Rs 1.5 lakh crore by selling its 10 per cent stake in LIC.
However, the government has reduced its disinvestment target to Rs 78,000 crore from Rs 1.75 lakh crore for the current fiscal. In this, the government has already raised about Rs 12,000 crore. This means that it can now try to meet the loss of Rs 66,000 crore by selling its stake in LIC.
For this reason, it is also being speculated, the government may decide to sell only 5 percent stake in LIC’s proposed IPO instead of 10 percent.
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