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LIC IPO: Should You Go For The Kill?

The trading world is abuzz with the mega initial public offering (IPO) by LIC, about to hit Dalal Street on May 4th and will be active till May 9th. This offering is India’s largest yet, though the price band has been set at a very reasonable 902-949 per share.

Now, the question is whether to swoop in or not. Let me lay down the rationales that will help you make the call.

Would You Be Missing Out?

Even though the IPO size is reduced, you should not be concerned about missing out on an opportunity as the market gives you limitless opportunities in many forms.

Does The Price Band Pose A Problem? 

In FY21 EPS stood at ₹4.70 per share. The same was ₹4.29 per share and ₹4.15 per share in FY20 and FY19.  Thus, at the upper limit of the price band—₹949—the issue will resolve itself by commanding a valuation of 202 times its earnings. The successful listing of LIC will also make it the most expensive government-owned company.

Where Does LIC Stand In The Current Market?

LIC’s value is about 1.8 times bigger than the assets managed by all Mutual Funds put together. It had a monopoly in the insurance sector for almost four decades and even today has a 68% market share.

Though determining the true value of the company is not an easy task, given how mammoth an entity it is, one thing for sure is that its revenue will continue to spike as people keep purchasing new policies due to rising health issues. LIC shares are available at a premium (GMP) of ₹70 in the grey market today, higher than the ₹50 valuations the day before. Hence, a higher opening can certainly be expected.

Should You Really Subscribe?

Though the company may have the highest market share in the industry, you should be conscious of the fact that the market is not on a mad bull run. Additionally, since the offering issue size is huge, you should not plan for a 50-100% gain just on the opening day. 

Conclusion: LIC is a long-term bet and should belong in your portfolio only if you can stay invested for the same.

Manvendra Pratap Singh is the Founder and CEO of Trinkerr. He is an IIT Kanpur-IIM Lucknow alumnus and an investor with 15+ years of experience.

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