- Posted by: Brighter Mind
- Category: Stock Analysis
LIC has recently concluded its most discussed initial public offer (IPO). It was the largest IPO by size in Indian market by any entity. The Government of India successfully raised Rs.21008 Cr from the public shareholders valuing LIC at Rs.600242 Cr. The IPO saw strong participation from domestic mutual funds and foreign marquee funds and raised Rs.5627 Cr from anchor investors. The GoI diluted 3.5% stake through IPO route.
LIC is India’s oldest and largest life insurer in India with a 61.6% market share in terms of premiums (or Gross Written Premium), a 61.4% market share in terms of New Business Premium (or NBP), a 71.8% market share in terms of number of individual policies issued, a 88.8% market share in terms of number of group policies. LIC is also largest asset manager in India as at December 31, 2021, with AUM (comprising policyholders’ investment, shareholders’ investment and assets held to cover linked liabilities) of Rs.40.1 Lakh Cr on a standalone basis.
LIC has been synonyms with insurance products in India and often the initiator of financial saving/planning for the middle-class. LIC brand recognition has been unparalleled. The brand ‘LIC’ was recognised as the third strongest and 10th most valuable global insurance brand in 2021, as per the report released by Brand Finance. Its distribution network is wide spread and has the largest agent network of 13.3 Lakh individual agents as on December 31, 2021, which accounted for 55% of the total agent network in the country. It covers nearly every corner of India and has offices in 91% of districts in India.
LIC scores positively on scale, distribution network & brand. But, LIC lags behind its peers in terms of digital channel sales, alternate channel sales and bancassurance sales. The value migration has been happening toward private life insurers since the sector opened to private players during 2004 & it has been evident from trends in LIC’s market share loss.
LIC product mix has been oriented more towards low margin participating products. LIC has 98% participating and 2% non-participating product mix in its serviced insurance portfolio. This has led to lower Value of New Business margin (VNB Margin) compared to the industry. LIC had VNB Margin of 9.9% during FY21 compared to HDFC Life’s 27.4% and ICICI Prudential Life’s 28% during FY22. This had led to market participants ascribing lower valuation multiple to LIC on M cap/Embedded Value (EV) basis. LIC brought its IPO at 1.1x of Mcap/EV.
LIC has been more aggressive in recent days on alternate channel sales and also focussing more on Non-par products in its product mix. This will lead to better VNB margin profile in future for LIC and subsequent perception change by market participants which in-turn narrows the valuation discount to its peers.