IPO size to help LIC enter Nifty50: UBS
PremiumExperts say the reported net profit of LIC is understated and does not capture its true earning potential
MUMBAI : The much-awaited public offer by Life Insurance Corp. of India (LIC), which will help the government raise raise more than ₹65,000 crore through the sale of a 5% stake, will create a large enough free float for the stock to be included in mainstream indices such as the Nifty50, UBS Global Research said in a report on 15 February.
“LIC will be the third-largest stock in India by market capitalization, and the 32nd-largest by free float, ensuring an entry into mainstream indices, e.g., Nifty-50," it said.
The share sale will also test the investor appetite at a time when the markets are volatile due to the Ukraine crisis, high crude prices, rising US inflation and the much-anticipated Fed rate hikes.
Nevertheless, the listing may see strong valuations, said experts.
Several factors are favourable for LIC. It is the largest and oldest life insurer in India, and has the largest share of household savings, to dominate the market, despite rising competition from private life insurers. According to UBS data, LIC employs more than 50% of the industry agents, and these agents have the highest productivity.
Analysts at Jefferies India Pvt. Ltd said in a 16 February report: “LIC accounts for 60% plus of life insurance new premiums and 40% of retail APE (annual premium equivalent), driven primarily by its industry-leading agency force of 1.34 million and it also has 72 bancassurance partnerships." A bancassurance partnership is an arrangement between a bank and an insurance company for selling policies.
Besides, the strong earnings prospects are not being adequately captured, said analysts.
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Haitong Securities analysts said LIC’s true profit and loss potential can be 10x of its reported figure, considering that it reported a net profit of ₹2,900 crore in FY21 despite managing a very large asset of ₹35 trillion as of March 2021. In their opinion, the reported net profit is highly understated and does not capture the true earning potential of LIC.
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