LIC IPO : Competitors of LIC are currently trading at 2-3.3 times their one year forward embedded value. In the opinion of UBS, this discount to private companies is due to LIC’s traditional savings-heavy business mix, lower operating leverage, greater reliance on agency channels and its state-owned position.
Government may raise capital up to Rs 94,000 crore
LIC had submitted the much-awaited draft Red Hearing Prospectus (DRHP) with SEBI on February 13. Under the IPO, the government is working on a plan to sell around 5 per cent stake in the life insurance company.
An analysis by Moneycontrol suggests that the government may raise capital between Rs 53,000 crore and Rs 94,000 crore from the IPO, which will help it meet its Rs 78,000 crore disinvestment target for the current fiscal.
LIC IPO: If policyholders want to invest in IPO, then PAN will have to be updated by February 28, understand step by step process
Increasing shareholder interest
Market speculation suggests that the IPO price could be around Rs 2,000-2,100 per share, taking the market capitalization of LIC to around Rs 13.3 lakh crore. At this valuation, LIC will trade at 2.5 times its reported embed value. Given that the life insurance company has fixed its embedded value at Rs 5.4 lakh crore, UBS Securities said shareholder interest in non-participation funds is increasing by 100 per cent. “On parity basis, without change in distribution profits, the embedded value would have been Rs 1.25 lakh crore,” the brokerage firm said.
LIC IPO: Will the increase in interest rates affect LIC’s $128 billion stock portfolio?
Private companies will also get the benefit of listing
UBS Securities expects the listing of LIC to have a positive impact on external factors as it will increase awareness and benefit private companies as well. The brokerage expects that LIC will not increase the share of protection products in its product mix in view of its policy to remain a saving instrument for Indians.
Disclaimer: The views and investment tips of investment experts on Moneycontrol are their own and not that of the website or its management. Moneycontrol advises its users to consult certified experts before taking investment decisions.
,