LIC may raise up to Rs.50,000 crore via its IPO

According to a Bloomberg report, the long wait for the LIC IPO may be finally about to end. Apparently, the union government has toned down its valuation and its funding needs from the LIC IPO.

The government will now seek around Rs.50,000 crore by selling about 7% stake in the IPO. That would approximately peg the overall valuation of LIC at around $94 billion, which is materially lower than what the government was originally expecting.

In terms of timing, the government is likely to complete the issue in the second week of May. The current filing approval accorded by SEBI expires on 12th May.

If the IPO is not announced before that date, then the government will have to seek fresh actuarial valuation for LIC, which is likely to be a very long drawn process. However, the other requirement of filing the December quarter numbers with SEBI is already complied with.

Even assuming that the IPO would be only worth Rs.50,000 crore, it would still be the largest IPO in Indian primary market history by a huge margin.

Prior to this IPO, the biggest IPOs in the Indian market were the Paytm IPO in the year 2021 at Rs.18,300 crore, Coal India IPO in the year 2010 at Rs.15,500 crore and the Reliance Power IPO in the year 2008 worth Rs.11,700 crore. All the 3 IPOs are trading below their issue prices as of date.
 

As per the DRHP, the original plan was to sell 31.60 crore shares (representing 5% stake in LIC) at a IPO value of Rs.60,000 crore. That would have assigned an overall valuation of $159 billion.

However, in the revised plan, according to Bloomberg, the government plans to raise just Rs.50,000 crore by offering 7% stake, valuing LIC at just about $94 billion. Obviously, the lowering of the valuation has been necessitated by the FPI outflows and Russian war.

For the fiscal year FY22, the government had originally set a divestment target of Rs.175,000 crore which included the divestment of BPCL and LIC.

However, the BPCL divestment could not happen on valuation concerns and the LIC IPO had to be put off due to unfavourable market conditions. Hence, the government ended the year with collections of less than Rs.18,000 crore via the divestment route, against the original target of Rs.175,000 crore.

LIC's reported net profits of Rs.235 crore for the third quarter ending Dec-21 compared to just Rs.94 crore in the year ago period. Even the 9-month net profit increased sharply YoY from just Rs.7 crore to a whopping Rs.1,643 crore.

However, the caveat is that this sharp jump in LIC profit was largely due to the change in the surplus distribution model by bringing it at par with the private sector model. Hence this profit growth could be temporary.

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