Introduction: LIC IPO Update
The Life Insurance Corporation of India (LIC) was created on September 01, 1956, after the Parliament of India passed the Life Insurance Corporation Act, 1956. It was created with the sole purpose of spreading life insurance across the country and providing insurance cover to every citizen at an affordable cost.
Some developments and news regarding LIC IPO analysis by the Government Officials are coming up in the market and therefore in this blog we will be discussing these developments in brief and let’s see if LIC can become the Biggest Listed Company in India.
LIC IPO-Valuation: LIC IPO Shares
Recently, Government has proposed to increase the authorized capital of Life Insurance Corporation (LIC) from its current valuation of Rs. 100 crores to Rs. 25,000 Crores.
Further, this authorized capital of Rs. 25,000 crores is divided by Face Value of Rs.10, which will make 2500 cr. shares of LIC to trade in the market.
Due to complexities involved in the insurance sector, ascertaining valuation of companies in this sector is a quite difficult process.
Majorly, because formerly the focus of the LIC was only on policyholders, and now this focus will shift towards Shareholders as well with the coming of IPO.
Earlier, almost 95% of the profits of the company were enjoyed by the Participatory Policy Shareholders. Indeed, these shares of policy holders in a company's profit will reduce post listing of the company and the margin of effect caused will be noteworthy.
According to the Chief Economic Advisor of India, K.V. Subramanian, the market valuation of LIC can be around Rs. 13 Lakh Cr. to Rs. 15 Lakh Cr. and in-total 2500 Crores Shares can trade in the market.
As per the stated market valuation and no. of shares we can easily calculate the expected price of the IPO by dividing Market Valuation of the company by Total No. of Shares. We will apply the formula on both lower side and upper sides of the stock market valuation, which will help us to estimate the price band of the IPO. For Example:
By above calculation, we got the Expected Price Band of IPO between Rs. 500 per share to Rs. 600 per share.
As of now, LIC can become India’s No. 1 Market Capitalization Company if the company valuations stay around Rs. 15 lakh cr.
Currently, Reliance Industries occupies the first position with the highest market capitalization of Rs. 14.5 Lakh Cr.
LIC has the full potential to become the number 1 Listed company in India with the highest market capitalization in India.
Government’s Target From LIC IPO: LIC IPO News Update
Currently, the Government aims to monetize around Rs. 90,000 crores from stake sale in LIC. As per the estimated price band of IPO of Rs. 500 to Rs. 600 and market valuation of Rs. 13 Lakh Cr. to Rs. 15 Lakh Cr., Government can fulfil its target by bringing 6%-7% public issue.
Shareholding Pattern: LIC IPO Valuation
Presently, Government owns 100% stake in Life Insurance Corporation of India, post-public issue, the shareholding of government will certainly fall, but Government will remain in control over LIC by holding significant stake.
Possibly, Policyholders might also get allotted some shares. This lucrative offer can lead to addition of new policyholders.
With the possibility of sucking in a significant amount of Rs. 90,000 crores from the market, it may also affect its liquidity positions.
Normally, in the current ongoing Euphoric IPO market, where an IPO is subscribed 150 times to 200 times which brings in liquidity of around Rs. 1 lakh crore in the market for a nominal IPO size of Rs. 600 crores.
Also, generally, the engaged fund in the IPO gets freed on non-allotment, but same is not the case with LIC IPO, it will totally absorb the liquidity from the market, as the transaction of the publicly issued shares will continue to carry on.
Overall, LIC IPO review of Rs. 90,000 cr. (expected) might have a possible impact on the market from a liquidity point of view, where liquidity will be absorbed from the market for a longer period of time.