Life Insurance Corporation’s (LIC) initial public offer’s (IPO) pricing is very attractive and investors can look forward to returns in the years to come as the company has potential for growth, LIC Chairman M R Kumar said on Friday.
More than the embedded value one should look at the value for new business (VNB) going forward, and it should reach 12-13 in the future, he said in an interview.
VNB margin is what investors would be looking at and it is 9 for LIC at present, he said.
On whether there is enough money on the table, he said, “It is based on the perception of the market. LIC is starting at low VNB and has potential to grow”.
VNB is the present value of expected future earnings from new policies written during a specified period. It reflects the additional value expected to be generated through the writing of new policies during a specified period.
At these price levels, LIC IPO is valued at 1.11 times its embedded value compared to 0.21 of China Insurance or 0.54 of Ping An Insurance.
When pointed out that the previous listing of two insurance firms – New India Assurance and GIC Re – have not generated returns for investors, Mr Kumar said they are into different businesses and margins are wafer-thin there.
The issue price of New India Assurance was Rs 800 per share while for GIC Re it was Rs 912 per unit. However, their shares are trading at Rs 119.15 and 130.15, respectively.
These two public sector insurance firms were listed in 2017.
Defending the reduction of LIC IPO size to 3.5 per cent from 5 per cent earlier, he said it is the right size considering the capital market environment and expects significant retail participation in one of the most valuable corporations in India.
Even after the reduced size of about Rs 20,557 crore, LIC IPO is going to be the biggest initial public offering ever in the country.
So far, the amount mobilised from the IPO of Paytm in 2021 was the largest ever at Rs 18,300 crore, followed by Coal India (2010) at nearly Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore.