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| 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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