LIC IPO to come before May 12 deadline; 5% stake on offer

After a significant delay, the government is now expected to launch the much-awaited initial public offering (IPO) in early May. The state-owned insurer behemoth had filed the first draft red herring prospectus (DRHP) with market regulator Securities and Exchange Board of India (SEBI) on February 13. It had again filed an updated DRHP with SEBI, which was approved on March 21.

The revised draft paper for LIC’s public issue reflects its December quarter earnings, which were filed with the insurance regulator in early March.

LIC's DRHP was approved on March 8. However, after the LIC released its December quarter financial results on March 11, the details had to be included in the DRHP, which prompted the Centre to file an updated draft document.

May 12 deadline for LIC

LIC has time till May 12 to float the LIC IPO, following which SEBI's approval to issue a public offer will cease. If the deadline passes and LIC fails to launch the IPO by May 12, it'll have to again follow the process to file DRHP to seek SEBI's approval. Some merchant bankers had also written to the government to postpone the IPO citing the current volatile conditions in the stock market.

LIC's IPO, which was originally planned to be launched in March, was primarily delayed after Russia invaded Ukraine, which turned stock markets volatile. After Vijay Shekhar Sharma-led Paytm's disastrous start in the stock market, many new-age companies such as MobiKwik, GoFirst, and PharmEasy stalled or delayed their IPO plans. The delay in LIC's IPO has also created an environment of uncertainty for these companies too.

What’s on offer

The government owns a 100% stake in LIC. The draft papers filed in February showed the IPO is a 100% offer for sale (OFS) by the government and that there is no fresh issue of shares by the state-owned insurer. The government will sell 5% equity in the company or about 31.6 crore shares.

LIC has a 66% market share in new business premiums with 283 million policies and 1.35 million agents as of March 31, 2021. The embedded value of LIC as of September 30, 2021, is ₹5,39,686 crore. The government's shareholding in LIC stands at 100 per cent, with a total equity share capital of Rs 632 crore.

LIC's financials and premiums

LIC's net profit for the three months ended December 31, 2021, stood at ₹234.91 crore vs ₹94 lakh in the year-ago period. For the nine months up to December 2021, LIC's profit stood at ₹1,671.56 crore vs ₹7.08 crore during the same period in the previous fiscal. LIC's total income for Q3 FY22 was ₹261.24 crore vs ₹1.57 crore in the year-ago period.

The data shows LIC's first-year premiums were at ₹8,748.55 crore during Q3 FY22 vs ₹7,957.37 crore in the same quarter of the previous year. Renewal premiums were at ₹56,822.49 crore, a significant rise from ₹54,986.72 crore in the December quarter of last fiscal. LIC's single premiums stood at ₹32,190.15 crore Q3 FY22 vs ₹34,063.96 crore Q3 FY21. Total premiums for Q3 FY22 had increased to ₹97,761.20 crore vs ₹97,008.05 crore during Q3 FY21.

LIC had cash reserves worth ₹1,228.17 crore as on December 31, 2021.

Life insurers in India

There are currently 24 life insurance companies in India, with Life Insurance Corporation being the sole public player. The size of the Indian life insurance industry was ₹6.2 lakh crore on a total-premium basis in Fiscal 2021, up from ₹5.7 lakh crore in fiscal 2020.

The industry’s total premium has grown at 11% CAGR in the five years ended fiscal 2021. As per CRISIL Research forecast, the insurance industry’s total premium will grow at 14-15% CAGR over the next five years to ₹12.4 lakh crore by FY26.