Here are seven things to note about the LIC IPO, picked from the brokerage report of Motilal Oswal Financial Services.
1. Largest life insurer in India
Life Insurance Corporation of India (LIC) is the largest life insurer in India, with a 62%/61% market share in terms of Gross Written Premium (GWP)/New Business Premium (NBP). It is ranked 5th globally by life insurance GWP and 10th globally in terms of total assets. It has the biggest AUM of INR40tn as of 9MFY22 - 1.1x entire Indian MF industry AUM and 3.2x total AUM of all private life insurers in India.
2. Focus on diversifying product portfolio
LIC product portfolio is largely dominated by individual policies (70% of total APE as of 9MFY22) of which Participating (PAR) products account for 92%. However the company now plans to focus on non-PAR and ULIP segment to diversify its portfolio. Despite dominance of par products, LIC enjoys large market share in health insurance and annuity products.
3. Highly productive agency dominated distribution network
LIC has the largest individual agent network of 1.3 mn - 6.8x the 2nd largest life insurer player in India. These agents account for 96% of LIC's NBP sourcing in the individual product category with highest productivity. In FY21, an LIC agent generated average NBP of INR412,934 vs average NBP of Rs124,892 for median of top five players in India.
4. Underpenetrated industry offers huge potential
India's life insurance penetration stood at just 3.2% in CY20 vs. 7.6%/6.4%/3.4% in Singapore/ S. Korea/Thailand - its Asian peers. The protection gap for India is also the highest at 83% (CY19) amongst APAC. As per Crisil, the GWP/NBP for life insurers is expected to grow at 14-15%/17-18% CAGR over FY21-26, taking penetration level to 3.8% of GDP.
Given the dominance of PAR products, VNB margins stood at 9.3% in 1HFY22, which is lower compared to private players. However rising share of non-par products going ahead could lead to improvement in margins. Post FY21, LIC changed its surplus distribution policy in which 10% of Par surplus and 100% of non-par surplus will be distributed to shareholders vs 95:5 ratio. This has resulted in increased Embedded Value (EV) of INR5.4tn as of 1HFY22.
6. Issue Size
INR206bn IPO consists of entirely OFS by GoI, which would result in latter's stake reducing to 96.5% post-IPO. The market cap post listing would stand at INR6002bn.
7. Valuation & View
LIC with its dominant position is well placed to capture the highly underpenetrated life insurance industry in India. We like its increasing focus on non-par products which could boost its VNB margins. It is valued at 1.1x 1HFY22 EV which is at significant discount to its private listed peers. Hence we suggest investors to Subscribe to the IPO.