LIC IPO

LIC IPO: All You Need To Know

The Story Of LIC

In 1956 government decided to merge LIC to make it a nationalized company. Until 2001 it enjoyed a market share of 100%. In 1992 when the government allowed the entry of private players, the market share of LIC started decreasing.

Today it has a market share of 61%. There is a total of 24 life insurance companies in India. Although the long experience in the industry is helping LIC to beat its competition.

Details about LIC IPO

If its IPO successfully debuts in the market then it will become the third-largest company after giants like Reliance and TCS.

According to DRHP filed to SEBI, Government is planning to sell its 5% shares for the IPO worth 8 billion dollars. It is expecting 7.5 to 10 million retail investors will apply for the IPO.

Although the news is not confirmed the shares of LIC will be open for the investors on 11th March. The government also gave permission to FDI for investment up to 20% in LIC IPO amid the tension in the market.

LIC IPO Effect on Policyholders

10% of shares are reserved for its policyholders and 5% for its employee. On the other hand, there will be a 10% discount on the shares. According to Bloomberg, the price of a single share would be around 2000 to 2100 rupees.

There is a lot of enthusiasm among people around its listing. So, you need to be cautious while investing in this IPO. A similar case happened with Paytm, which was all set to become the biggest IPO in Indian history but they fail miserably.

Today they already eroded more than 50% of investors’ wealth in just a matter of months. So, without wasting much time let’s see why there is so much hype around LIC IPO.

Advantages of LIC IPO

1. Trust of People

The biggest competitive advantage or moat of LIC is its trust. No other insurance player has much brand awareness which LIC has. You can guess its popularity by the presence of a huge number of LIC policies in Indian households. Most probably your parents have at least 1 LIC policy.

2. Strong Network of Their Agents  

It has a vast network of its agents around the globe. It has more than 13 lakh agents and 1 lakh employees which covered about 92% of districts of the country.

Most of their sales are generated through their agents. Due to their vast network, they are a monopoly in the insurance business for decades.

3. High AUM

It has AUM, an asset under management that is bigger than the whole mutual fund industry and 16 times bigger than its second competitor.

Disadvantages of LIC IPO

1. Shrinking of market share

At some time, it has a 100% monopoly in the insurance business but today it has a market share of 61%. When private players were using robust technology, LIC was left behind. If nothing changes similar trend is expected.

2. Investment in many companies

It is the majority shareholder in IDBI bank with 49% shareholding. It is a cash cow for the government. Whenever government needs to pay a debt or provide capital to PSUs, the cash reserves of LIC have been used to meet their disinvestment targets.

If the government continues to do it then it is a sign of worry for shareholders as it will hurt the profitability of the company. 

3. Inefficiency in the operations

Like other PSU’s the operational efficiency is quite low. They are slow to react to upcoming market opportunities. In addition, they have to bear the high cost for their operations due to the low use of technology.

The high dependence on agents reduces their profit margins. 93.8% of sales of premiums were done by agents.

Conclusion:

I think the never-ending trust of customers is an edge for LIC over its competitors. It can help them grow in the less penetrated insurance sector. That’s all for today guys.

For more information, you can visit LIC’s official website. Let me know in the comment section what do you think about the LIC IPO whether it is good or bad.

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