Wednesday, March 30, 2022

Joyalukkas IPO - A Good Balance of Growth & Profitability

Joy Alukkas, Founder

When it comes to capital markets, jewellery chains don’t have a coveted name. Part of the problem is their inconsistency in profit growth, as they are often saddled with large equities as well as large debts to fund new store growth. But Joyalukkas has been following a totally different strategy for growth, relying on own capital, high capital efficiency, internal accruals and reasonable debt to power growth across India. That is why Joyalukkas’ plans for its Rs. 2300 crore IPO are keenly discussed by investors.

Leading national jewellery retailer, Joyalukkas has filed a Draft Red Herring Prospectus (DRHP) for its proposed Rs. 2300 crore Initial Public Offer (IPO). Joyalukkas is one of the best managed gold and diamond jewellery retailers in the country, and the DRHP sheds light on several of its strengths.

Despite growing at a faster clip than most of its peers, Joyalukkas had so far shunned private equity, instead relying on own capital, internal accruals and debt for funding the growth of its formidable retail chain. The promoter Alukkas Varghese Joy (better known as Joy Alukkas) and his family still holds close to 100% of the equity (99.98% to be precise) of Joyalukkas.

Such careful guarding of its own equity by the promoter group is extending to the IPO too, and despite its huge IPO size of Rs. 2300 crore, it doesn’t have an Offer for Sale (OFS) by the promoter group, which it could have easily done. This respect for their own equity by the promoters is likely to be noticed by the discerning investors in the market.

The luxury brand’s reliance on debt has also been quite reasonable unlike some of its peers that are saddled with high debt. As on September 30, 2021, Joyalukkas’ net debt to equity ratio was 0.77. And as of 28 February 2022, the total outstanding debt of the firm was Rs 1,524.47 crore.

The company has been on a prudent path of debt reduction for a few years now. Net Debt to Equity Ratio had fallen from 1.04 in 2019 to the 0.77 level achieved as on September 30, 2021. Even the bulk of the IPO proceeds - Rs 1400 crore out of Rs. 2300 crore - would be for debt reduction, and this will help Joyalukkas cancel 92% of its current debt and help its journey towards being a debt-free company.

Joyalukkas is also noted for its consistency in generating profits, unlike many of its peers. Its weighted average return on net worth (RoE / RoNW) for the past three fiscals stands at a healthy 16.43%, and this is despite two out of these three years being the pandemic years. According to a report by Technopak, the company has the highest EBITDA and one of the highest PAT per square foot among all large jewellers in the country.

In FY21, Joyalukkas had clocked a net profit of Rs 472 crore on revenues of Rs 8,066 crore. The company had posted Rs 40.71 crore as profits in the year-ago period, which was the most affected by Covid-19 lockdowns.

The growth in the current fiscal is also going stronger than the previous fiscal. For the half year ended in September 2021, its revenue was at Rs 4,012.26 crore against Rs 2,088.77 crore a year ago. Net profit for the period stood at Rs 268.95 crore versus Rs 248.61 crore last year.

With a face value of Rs10 each share, the current paid-up capital of the company is Rs 770.3 crore divided into 77.03 crore shares. The Net Worth or Shareholders Equity of the company as of September end, 2021, was around Rs 1917 crore, which works out to a book value per share of Rs 283.68, pre-issue.

Joyalukkas’ founder Alukkas Varghese Joy, hails from a leading business family in Thrissur, Kerala, and has over 33 years of expertise in the jewellery industry in India, Middle East and several other global markets. The company began operations in 2002 by opening a showroom in Kottayam, Kerala, and has grown ever since then at a blistering pace.

Today, the company operates 85 showrooms under the ‘Joyalukkas’ brand located across 68 cities in India with an aggregate area of approximately 3,44,458 square feet, as of January 31, 2022. Of these 85 showrooms, six are large-format showrooms with an area of 8,000 square feet or more. Its largest showroom so far is at Chennai, Tamil Nadu, which has an area of over 13,000 square feet.

Quite interestingly, three business groups founded by Thrissur-based businesspersons – namely, ESAF Small Finance Bank, Popular Vehicles and Sales Ltd and now, Joyalukkas, are set to become public listed companies during the ensuing financial year itself as they all have filed initial proposals for their IPOs. The city is also known for producing leading listed financial institutions like CSB Bank, South Indian Bank, & Manappuram Finance.

At present, Joyalukkas generates over 90% of its revenues from southern states followed by the Western region. The company is in the process of expanding its geographical footprint, even while maintaining its leadership in its key markets of Southern and Western regions.

As mentioned earlier, the net proceeds of the IPO will be utilised for repayment or prepayment, in full or part, of certain borrowings availed by the company of around Rs 1,400 crore. The leading retailer will also use around Rs 464 crore for financing the opening of eight new showrooms. The remaining funds will be utilised for general corporate purposes.

Over the next two years, Joyalukkas plans to open eight new showrooms in Telengana, Maharashtra, Odisha and Karnataka. In FY23, four new showrooms will be opened in Mumbai, Habsiguda and Mehdipatnam in Telangana and Bhubaneshwar. Those in Siddipet, Suchitra and Chandanagar in Telangana and Gulbarga in Karnataka will come up in FY24. Total investment on these showrooms will be Rs 492 crore.

Not more than 50% of the issue will be available for allocation to qualified institutional buyers (QIBs) and up to 60% of the QIB portion would be allocated to anchor investors on a discretionary basis. Not less than 15% will be available to non-institutional bidders and not less than 35% of the issue shall be available for allocation to retail individual bidders.

The book running lead managers to the issue are Edelweiss Financial Services, Haitong Securities India Private, Motilal Oswal Investment Advisors, and SBI Capital Markets. The registrar to Joyalukkas IPO is Link Intime India.

Joyalukkas has a range of over 100,000 jewellery designs, across various price points, and caters to customers across all market segments. The firm maintains an inventory of jewellery made of gold, diamond and other precious stones, platinum and silver, all with an extensive array of designs. Its gold, diamond and other jewellery inventory in each individual showroom reflects regional customer preferences and designs.

In FY21, the gold category accounted for 84.24% of its overall revenue from operations, whereas diamonds and others, including silver and pearls, made up 14.14% and 1.62% respectively.

Its product profile includes traditional, contemporary and combination designs across jewellery lines, usages and price points. Its focus on design and innovation, ability to recognize consumer preferences and market trends, the intricacy of their designs and the quality of the products are among its key strengths in jewellery retailing.

Its large format showrooms provide a luxury experience and customer service, with a combination of inventory and variety of jewellery products enabling it to attract and retain a growing customer base exceeding over 2 million customers so far in India.

Joyalukkas diamond jewellery is certified by Forevermark, IGI, GIA and DHC. They have developed a number of sub-brands that include Pride, Eleganza, Veda, Ratna, Zenina, Apurva, Masaaki Pearls and Li’l Joy Kids Jewellery.

The Indian opportunity in jewellery retailing is unique in the global jewellery market, which is estimated at $320 billion currently. India is the second largest consumer for gold ornaments after China, and one among the top-three in the world when it comes to all kinds of jewelleries, behind USA & China. Global jewellery market is projected to reach $350 billion by 2025. There is no inventory obsolescence risk in jewellery retailing as products can be recycled to make new ones.

But the Indian market opportunity is also unique in two other ways. In India, gold serves a dual purpose of ornamentation and investment, and is therefore never a hard sale like many other lifestyle retail segments. India also plays a significant role in the supply chain of both gold and diamond jewellery market.

The Indian market’s growth dynamics also favours organized retailers like Joyalukkas. The size of the Indian jewellery retail sector was close to Rs 4,58,000 crore in fiscal 2020, and it is projected to increase at a CAGR of 9% to reach Rs 6,94,000 crore by fiscal 2025. However, organised jewellery retailers like Joyalukkas would increase at a quicker rate, at a CAGR of roughly 14% from Rs 1,45,000 crore in fiscal 2020 to Rs 2,75,000 crore in fiscal 2025. The share of organised jewellery retail in the whole jewellery market is projected to rise from 32% in fiscal 2020 to 40% in fiscal 2025.

To serve to younger and tech-savvy clientele, Joyalukkas had launched its online portal,, in March 2018 where customers can browse the ornaments based on their preferences, collections, and designs, then purchase it and have it delivered to their homes through a partnership with third-party logistics companies.

It also offers a purchase advance scheme on its online platform, called the Easy Gold Scheme, where customers can plan for gold jewellery purchases in fixed monthly instalments up to ten months in advance, at the current gold rate, and finally receive their purchase at their doorstep.

Joyalukkas is one of the jewellers credited with professionalizing the jewellery retailing business in India into an organized sector. Along with this, its high respect for equity, prudent financial management, better capital efficiencies and high growth trajectory are likely to garner high investor interest in this IPO.

Saturday, March 12, 2022

SASTRA Graded Among Top-5 Institutions Nationally

SASTRA Chancellor Prof. R Sethuraman and Vice-Chancellor Dr. S Vaidhyasubramaniam.

Tamil Nadu based deemed-to-be-university, SASTRA, has retained the highest grade of A++ awarded by the National Assessment and Accreditation Council (NAAC) in the recently concluded fourth cycle of re-accreditation.

Headquartered near the ancient temple town of Thanjavur, The Shanmuga Arts, Science, Technology and Research Academy (SASTRA), also bettered its score to 3.76/4.00 in this fourth cycle from the 3.54/4 it had scored in the third cycle. 

With this, SASTRA, led by its Chancellor Prof. R Sethuraman and Vice-Chancellor Dr. S Vaidhyasubramaniam, has been graded at the topmost position among all higher educational institutions in Tamil Nadu and has become one among the top five national institutions with such a score.

The peer review team of NAAC, which had visited the university’s primary campus at the laid-back town of Thirumalaisamudhram, recently, appreciated SASTRA’s research and social outreach activities apart from its modern infrastructure and proactive management style before arriving at this final score. With this latest re-accreditation, SASTRA will also remain as a Category 1 University for the next seven years.

After receiving the coveted re-accreditation at the nationally topmost level, Vice-Chancellor Dr. S Vaidhyasubramaniam was thankful to the Central and State governments, the entire SASTRA family of faculty, students & parents, and all other stakeholders for their continuous support and encouragement.

It is no wonder really that SASTRA has been steadily moving up in such accreditations, rankings, placements and all such metrics. The deemed university is noted for its proactive stance when it comes to furthering its academic and research standards, which has come to inspire generations of students.

SASTRA’s practice of giving Distinguished Alumnus Awards is very telling in this regard. In its latest round, four former students were selected as SASTRA Distinguished Alumnus. The university has a thriving SASTRA Alumni Association, which is now headed by SV Ramanan, Secretary, who is working as CEO (India & South Asia) of financial software major Intellect Design Arena. Himself a SASTRA Distinguished Alumnus, it was he who gave away this year’s awards.

The latest winners are, Manoj Varghese (of 1994 Mechanical Engineering batch), who is now Chief Platform Head - Mahindra & Mahindra; Prof. S Kalyankumar and Prof. K. Sundarajan (of 1998 ME batch), who are now professors of Mechanical Engineering at the University of Alabama, USA; and C Vasudevan, (of 2007 Biotech batch), who is now a noted entrepreneur having co-founded the B2B startup, Ninjacart, which is India's largest fresh produce supply chain company, backed by Walmart, Flipkart, Tiger Global and others, and almost a unicorn now.

How do SASTRA students go on to be such high achievers? Much credit goes to the high quality faculty who have been handpicked by Chancellor Prof. R Sethuraman and Vice-Chancellor Dr. S Vaidhyasubramaniam. There are examples galore of such inspiring faculty in the rolls of SASTRA now, with a recent example being Prof. S. Swaminathan who was recently awarded the prestigious Prof. CNR Rao Bengaluru India Nano Science Award at the 12th Bengaluru India Nano, India’s flagship Nanotech Event.

Another SASTRA faculty who shot into limelight recently was Senior Assistant Prof. James A Baskaradas, of the School of Electrical & Electronics Engineering, whose innovative idea on the design of intercept receiver for electronic support systems won the Defence Research and Development Organisation’s (DRDO) Innovation Award contest - Dare to Dream 2.0. The idea conceived by Prof. James will be of much use to the armed forces in surveillance support, and his innovation is now under active consideration of the Technological Development Fund Scheme for transforming the idea into a prototype.

Apart from selecting, grooming and facilitating such stellar faculty, SASTRA takes immense efforts to forge the right kind of industry tie-ups. Two recent examples of such tie-ups were with Singapore based Cantier Systems and Tata Electronics. The first partnership has resulted in the setting up of the SASTRA - Cantier Centre of Excellence in the campus that will give students a headstart in next generation manufacturing technologies like Manufacturing Execution Systems (MES), Industrial Internet of Things, Artificial Intelligence, Machine Learning, Automation etc.

Under the tie-up with Tata Electronics, SASTRA students admitted to the two-year MTech degree in Very Large-Scale Integration (VLSI) Design will complete one year of the course at SASTRA campus in Thanjavur, and the second year in either Asia University or Yuan Ze University in Taiwan. The second-year curriculum will include practical experience in major lab facilities, and a six-month industry internship in Taiwan's advanced semiconductor manufacturing industry. Tata Electronics will help SASTRA to create the course curriculum and will also provide financial support for overseas education and training of these students.

With such world-class initiatives, however, it is easy for any university’s faculty and students to lose touch with the ground realities in India. But such things don’t happen at SASTRA, as the Chancellor and Vice Chancellor are very particular that the university should do more than its reasonable role in supporting the community around it. 

Recently the university delivered free medical consultation at a camp organised in memory of the Founder Chancellor of the SASTRA University, S. Ramachandran at Thanjavur and Kumbakonam. An excellent medical team led by the Vice-Chancellor of Sri Ramachandra Medical University, Chennai, Dr. JSN Moorthy provided medical advice to the patients suffering from cardiac, neurology and ENT related problems at the camps. People from economically weaker sections in the Thanjavur district requiring surgery will be identified and the cost of surgery will be sponsored by the University.

In another major outreach to the community around it, 75 schools in Tamil Nadu have been provided with Virtual Reality (VR) facilities by Sastra University to promote digital education and interactive learning in the state. This will provide students at these 75 schools an immersive & experiential learning experience. This announcement was made as part of the National Science Day Awards presentation function organized by SASTRA.

Explaining this contribution from SASTRA to the greater cause of nation building and education, Vice-Chancellor Dr. S Vaidhyasubramaniam, said, “The VR facility each costing about Rs. 2 Lakhs at these 75 schools shall be loaded with pre-developed subject matter content that shall provide students creative pedagogical tools to appreciate science concepts & improve their learning outcome.”

Tuesday, March 8, 2022

Odisha Based KIIT All Set to Achieve 100% Placement Soon

Prof. Achyuta Samanta, Founder, KIIT

Odisha based Kalinga Institute of Industrial Technology (KIIT) is all set to achieve 100% placements for its 2022 BTech batch. Founded by the noted educationist, philanthropist, social worker and Lok Sabha member, Prof. Achyuta Samanta, KIIT is now leaving no reason for students from Odisha to go outside the state for their higher studies.

When the latest round of placements for this ongoing academic year was completed, the leading deemed-to-be-university has landed placements for 3000 eligible students of the current BTech batch, out of a batch size of 3500 students.

What is more, multiple offers have been raining on KIIT students, despite this being a most difficult academic year due to the pandemic’s unprecedented second wave and the suddenly erupting invasion of Ukraine by Russia. These 3000 students have bagged over 4200 job offers, even under this scenario.

The Bhubaneswar headquartered KIIT had begun its first round of placements in May 2021, with the ‘Day One’ numbers from four major MNC firms alone amounting to over 2000 offers. This had marked a major breakthrough for KIIT as unlike its peers based in metro cities, the university had to battle the image of being housed in a relatively economically backward state of the country.

The deemed university’s placement performance this year, by way of quantity and quality, since that momentous Day One, shows that it has successfully broken that mould and that it is giving BTech aspirants of Odisha no more reason to go searching for a university outside the state at a much higher cost.

For instance, the average CTC in this year’s placements is Rs. 6.05 lakhs per annum, which is a 30% growth over the average CTC last year. Out of the 3000 students who already bagged placement offers, 1500 students have obtained it from Tier 1 or ‘Dream Companies’ with an average CTC of Rs. 8.10 lakh per annum. 

KIIT also proved that it is attracting topnotch talents, when five of the students in this batch obtained the highest CTC of Rs. 52 lakh per annum, which is comparable to the best institutions in the country. Thirty-five companies also offered above average CTC of Rs. 10.00 lakh or above per annum, to get such high quality recruits trained to perfection at KIIT.

The faculty of KIIT has also been an inspiration for these students to outperform. While various KIIT faculty routinely end up as newsmakers, two innovations by Prof. Biswaranjan Acharya of the School of Computer Engineering deserve a special mention. 

The young Prof. Acharya has successfully created an advanced wearable biomedical device that takes multiple automatic inputs from the user via sensors to assess the stress and anxiety level of its users, and suggest remedial measures like engaging them in soothing talk or notifying some friends or relatives! 

This invention is likely to bag an international patent, much like Prof. Acharya’s earlier invention of a high-tech glove for visually impaired people that helps them to detect and navigate obstacles around them, which had bagged a patent from the Australian Government. With such exceptional faculty to inspire, it is no wonder that KIIT students are performing well in the real world too, for which the acid test is campus placements.

Assisting KIIT Founder Prof. Achyuta Samanta in the exemplary running of this deemed university are Prof. Sasmita Samanta, Vice-Chancellor, and Prof. Saranjit Singh, Pro-Vice-Chancellor.

Tuesday, January 25, 2022

Why LIC IPO is a Never Before, Never Again Offering

MR Kumar, Chairman, LIC

LIC of India is in the final stages of filing DRHP for its IPO which is expected to be India’s largest at around Rs. 1 lakh crore for a valuation of Rs. 15 lakh crore. With assets of $463 billion, Life Insurance Corporation of India is larger than even many booming national economies like Israel, Norway, UAE, Denmark, Malaysia, Singapore & Hong Kong! Unbelievable? Then wait till you hear the full story. Even with such world-beating assets, LIC of India is likely to offer its IPO at modest valuations, which will see it listing behind India’s most valuable firm Reliance Industries and maybe even behind the second most valuable Tata Consultancy Services. What this means is that LIC IPO even while being India’s largest ever, won’t be charging a premium valuation commensurate with its market leadership by way of Gross Written Premium (GWP) market share of 64.1% and New Business Premium (NBP) market share of 66.2%. This is likely to drive intense investor interest, both from retail investors and institutional investors from India and abroad in this once-in-a-lifetime kind of IPO, of this life insurance and equity investments major, which is the 5th largest life insurer in the world by GWP and 10th largest by assets.

LIC is not the first large-sized Government owned company to go for its IPO, with the likes of SBI and Coal India getting listed without much fanfare. Why then is it said that LIC IPO’s further details will be revealed by Finance Minister Nirmala Seetharaman herself in her upcoming budget speech?

The investment world is slowly starting to appreciate what a different organization is Life Insurance Corporation of India. It is not only a life insurance and investments behemoth, but a grassroots level nation building organization like no other. During the 66 years of its existence, LIC has provided Rs. 55 lakh crores for the twelve five-year plans that created modern India. Apart from this, LIC has invested Rs. 36 lakh crores in Union and state government securities, bonds and development projects.

It has also provided Rs. 28,605 crores as dividends to the Government. Despite all these contributions, the assets of LIC are worth more than Rs. 38 lakh crores, and it holds the highest quantity of land and fixed assets, after the Indian Railways. Capital for its subsidiaries like LIC Mutual Fund and LIC Housing Finance, and for emergency take-overs like in IDBI Bank, came from its internal funds and not any external debt or capital provider. What all these means is that LIC is a highly capital efficient organization.

But there is more to it than meets the eye. All these nation building contributions, dividends, asset creation, subsidiaries, buyouts etc have really happened on policyholders’ funds or reserves, which means the insurance and savings of crores of Indians are what really powered all these. But LIC has been an excellent caretaker of public's funds, as it is the only life insurer in India which distributes 90-95% of its profits back as bonus to its policyholders.

While the full details of LIC IPO are yet to be finalized and made public, as it is in the final stages of its DRHP filing, it is expected to happen in the first week of February. But most analysts have arrived at an approximate consensus regarding the broad contours of the offer. At around Rs. 1 lakh crore size, LIC’s IPO will be India’s largest ever, at a total valuation or market capitalization of around Rs. 15 lakh crore. With its embedded value likely to be around Rs. 4 lakh crore, LIC can target up to four times this figure, that is Rs. 16 lakh crore, but Government is likely to go in for only a Rs. 15 lakh crore valuation.

From its side, LIC is leaving no stones unturned for the mega success of its IPO. Since around 20% of the mammoth issue will have to be taken up by foreign institutional investors, LIC is likely to include its December 2021 or Q3 results in its DRHP, as US regulations make it mandatory to include reporting periods within 135 days of IPO date. LIC has also gone all out with a public awareness campaign to ensure that its huge community of policyholders and insurance agents participate in this IPO. They are expected to have a reasonable discount while applying for the IPO, and to make this process smooth, customers are being encouraged to link their policies with their demat details.

LIC’s huge size by way of customers, insurance agents, subsidiaries and associate companies, gives it some unique capabilities in new businesses. A recent case in point is its Credit Card subsidiary, LIC Card Services Ltd (LIC CSL) which though being in operation since 2008, decided to flex its muscles starting from last year. One reason is of course the newfound boom in credit card business since the pandemic struck. And the other, the acquisition of IDBI Bank by LIC which gave it a ready banking partner to grow its credit cards business!

Now, the boom in credit cards also means it has become a field of cutthroat competition. Market leaders HDFC Bank, SBI Cards, ICICI Bank, as well as emerging players like IDFC First Bank, Axis Bank, Bajaj-RBL etc are fighting for both more customers and better quality customers. Where does LIC Card stand in this whole picture? That is where LIC’s might shines through. Last year it launched the Lumine and Eclat Cards which are co-branded Rupay Cards with IDBI Bank, which are made available free for all LIC policyholders and agents!

Apart from all the features of competing credit cards from market leaders, LIC Credit Card comes with some unique features like lifetime free, double reward points if LIC premium is paid through the card, no processing or foreclosure fee for EMI conversion, and two free add-on cards for family members. Needless to say that with such features the Lumine and Eclat Credit Cards have been a huge hit in the LIC community of policyholders and agents, which is of course the largest such family anywhere in the world.

LIC Card Services also has a premium Card that is also giving a stiff fight to such offerings from market leaders. The eligibility criteria to apply for an LIC Signature Credit Card is that candidates should hold a net income of Rs 15 lakh or above, per annum. The applicants need to produce their pay slip, showing a gross salary of Rs 1,25,000. It comes with MasterCard Lounge Access Programme across India and world, Complimentary Lost Card Liability Insurance, PlusPoints Rewards Programme, Cash Withdrawals, EMI Option, Fuel Surcharge Waiver, Easy Loans, Supplementary Cards, Balance Transfer etc

When listed, LIC may prove to be the perfect opportunity that India has ever seen. This is because, while fortune is definitely at the bottom of the pyramid, but the companies which own this fortune are right at the topmost rung - the largest cap. Again and again this has been proved right, with the latest proof coming during and after the devastating pandemic and lockdown. Companies like Apple, Microsoft, Amazon, Reliance etc are the ones who created the most wealth after the pandemic hit.

There are a few reasons for this. Firstly, largest cap stocks are not just their segment leaders (which of course is a huge advantage), but they are the overall market leaders or in other words what the overall market puts the maximum value on. Secondly, the largest investment funds in the world like mutual funds, pension funds, insurance companies and sovereign funds, can only invest in largecap stocks as midcaps and smallcaps can’t absorb their kind of huge funds.

Life Insurance Corporation of India, when listed is likely to have a market capitalization of Rs. 15 lakh crore, making it the second or third largest listed stock behind Reliance Industries and TCS. This is why the upcoming IPO of LIC is likely to be one of the most attractive stock market opportunities ever to hit the Indian bourses.

LIC can also prove to be the perfect growth opportunity. Very few companies in India have consistently grown for more than half a century like LIC of India. Starting out in 1956 with Rs. 5 crore as capital, LIC has grown to one of India’s giants with nearly Rs. 32 lakh crore in asset base. And from just being a life insurance provider, LIC has become a financial services conglomerate with divisions, subsidiaries, or associate companies in banking, home finance, pension fund, mutual fund, and more. And during these 66 years, from being a national player, LIC has ventured out into being a global player with operations in 14 countries. And the beauty is that LIC is still growing at an unbelievable pace, as seen from the recent numbers.

LIC also has one of the best de-risked growth models, unlike most large-cap firms. Companies become largecaps owing to growth over many decades, but then growth may stall too. This is because, as the networth or shareholder equity surges with consistent growth in profits over the years, it becomes increasingly difficult for largecap companies to deliver a meaningful return on equity, despite reasonable growth and profitability. Most largecaps go through this phase and many get stalled for years there, until they figure a way out of it.

But LIC of India is likely to have no such issues even after getting listed as one of the largest cap stocks in India due to at least two reasons. Firstly, it is still growing its core life insurance business at an admirable clip. Secondly, and this is the more important factor, it has a ready avenue to deploy surplus profits – the Indian equity market. And LIC’s rate of return from this activity is even ahead of its core insurance business and way ahead of the government bonds and bank fixed deposits where most largecap companies park their surplus cash.

This twin engine growth model – insurance and investments - is the greatest competitive edge that LIC would have in the market, post-listing. This is quite unlike most largecap companies, which do only one thing. Like, say, banks, steel manufacturers, cement makers, auto majors or paint companies – they do only one thing, but do it well.  Some of them have an additional line of business, but it tends to be minor compared with their core activity.

But LIC of India is in a different league altogether in this regard. It not only has dual lines of business – insurance and investing – but it is a market leader in both! And what is more, these are complementary activities. as mentioned earlier. But more needs to be said on these twin engines of growth at LIC. Insurance business, especially life insurance business, is a peculiar activity in that once customers are signed up each month for policies, there is a clear visibility on the kind of annual revenue from premiums that are going to flow in each year and each month. Also, there is a clear visibility on the normal payouts to customers on maturity of the policy.

Even the claim settlements on death, which may seem to be a variable factor, is quite stable across years. Taken together, what these factors mean is that insurance companies, especially life firms, have a clear expectation of the cashflow which makes them capable of being large and systematic investors. Indeed, in India and the world over, insurance companies are among the largest institutional investors – either for themselves or for their insurance customers through equity linked products like Unit Linked Insurance Plans (ULIPS).

Even in the crisis year of 2020, LIC has made an unbelievable profit of Rs. 13,000 crore from short-term investments within a matter of 4-5 months, which is an all-time record for the insurer.  LIC achieved this by following a contrarian investment principle, and leveraging its huge investment kitty. And LIC continues to be bullish on Indian equity and has earmarked an even greater pool of funds for market participation in 2022.

Not many companies in India or even in the whole world are capable of such feats, as they lack such complementary twin engines as well as such risk-taking abilities. LIC makes not only such hefty short-term profits, but its core investments in stocks, especially in bluechip companies, are maintained at significant levels always. And even when LIC is on a selling spree, it is highly selective, and coupled with new buys, which ends up making its portfolio move up steadily. Which means LIC is a long-term and short-term profit-maker in its equity business, which the market will find attractive when it goes for its IPO.


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