LIC IPO - Angel Broking

Mr. Jaikishan Parmar, Sr. Equity Research Analyst, Angel Broking Ltd

"The government, in its budget in Feb. 2020, expressed intention to list LIC in the FY21. This IPO would be the biggest in the Indian capital markets given the size and scale of LIC, the country's oldest and largest life insurer with a balance sheet size of over Rs 31 trillion. Considering current retail participation in the market Govt could come up with some benefit to retail investors for the success of IPO. Final Success of the LIC IPO would depend on valuation, how much value is available to investors for listing gain. The market cap would be excess of 10 lakh cr, considering the size govt will have to provide some discount to the retail investors. Currently, ICICI Life, HDFC Life and SBI Life are trading at 0.41x, 0.94x, and 0.51x of AUM (Mcap/AUM), respectively.

If we assign 0.35x to LIC AUM, the market cap of LIC comes at 10.86lakh cr. We believe LIC IPO will sail through if retail investors get a discount and if the IPO launches at an attractive valuation. Overall market sentiment should be also positive when such a big IPO comes. Some of the other positives which will favor LIC IPO are a) LIC enjoys strong Banca tie-up but it hardly contributes to new business, hence, there is scope to improve. B) NPAs and downgraded investment as % of total investments stood at 1.2% & 2.4% respectively. Provision coverage for GNPA stands at 90% c) LIC's non-linked AUM has 73% as G-Secs and 13% as equity. Exposure to corporate bonds was ~14% as on Mar'20, linked AUM has 67% as G-Secs and 17% as equity."

Source : Equity Bulls

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