On the path of monetization….
When a company needs extra money for its expenditures, debt, expansion, or any other reason, it lists itself in the share market and presents itself to the public for fundraising. To go public means to launch an IPO. An initial public offering (IPO) is the way of exchanging shareholdings of a private corporation to the public at large in the form of new stock issuance. An IPO allows a company to raise capital from the general public.
Because the transformation from a private to a public company typically includes a share premium for current private investors, it can be an important time for private investors to fully realize gains from their investment. Meanwhile, public investors are permitted to participate in the offering. Well, IPO is not a new concept. I hope this much revision was fine to make you understand what an IPO is? Well, if you are reading this the first time, then let me add a bit more information about IPO.
A corporation is regarded as private before leading up to an IPO.
As just a pre-IPO privately owned company, the company grew with a small number of investors, which includes early adopters such as the founding members, relatives, and peers, as well as wealthy traders. An IPO is a significant step for a company because it allows it to raise a large sum of money. This increases the company’s ability to develop and expand. The steadily increasing accountability and share listing validity may also aid in obtaining favorable deals when trying to seek money borrowed.
Now, good or bad, I don’t know, but the news is there is in the market and which has created havoc among the investors is that the LIC is going to launch its IPO. Yes, all the newcomers point out that a big company like LIC was not part of the stock exchange until now, but yes, it will be part of it very soon, probably in the fourth quarter of 2021 or the very beginning of 2022. There are many pros and cons of every IPO, so this is the case with the concerned one.
I am going to tell you the things you need to take into consideration if you are going to be one of the investors in this IPO or thinking of investing for the first time. The conditions are never the same for everyone. Even in a single time frame, something useless for someone can be useful for others. There are things to know before investing. These are not things to be aware of that you will decide yourself after knowing and plan your investment accordingly.
Advisors of LIC for IPO.
I hope you have heard the names of Deloitte and Edelweiss. These two are the leading financial consultation companies. Deloitte is an international company, while Edelweiss is a Mumbai-based Indian company. These firms were chosen based on their previous expertise with insurance IPOs and their money invested reach.
The consultants will be engaged in the preliminary work leading up to the IPO. Furthermore, the two companies will advise the government on the timing of the institution’s IPO minority sale and cash flows in the future. This is vital information from the point of view of investing the money in the stated IPO.
Importance of this IPO.
The AUM (Asset Under Management) of LIC is approximately 31 lakh crore. With 24 insurance companies, LIC controls a staggering 70% of the industry. In FY-2020, the company collected 1.78 lakh crore in first-year premiums, which was significantly greater than the prior year. With an overall value of nearly 120 Lakh crore, LIC is the country’s largest institutional investor. Eventually, the cumulative estimated premium accumulated by LIC is more than two-thirds that of the three previous biggest insurance providers: SBI Life, ICICI Pru, and HDFC Life.
The government’s decision to monetize and allocate this resource to new economic development and closing the budgetary gap is truly historic. Now, this seems good news that it can give a relaxation to the investors, and by the way, we are talking about LIC-IPO. It needs no introduction, but still, investments are subject to market risks. We should not frame our decision about anything as it is about money, and things are very flexible as the market is very flexible. As the next point is.
Valuation of LIC.
No data related to valuation is given, and there is the provision of adequacy. This is the situation where the valuation of the company is going to be very challenging. It may bring clouds of doubts in the minds of investors. After all, the valuation of the company is very important. However, based on its current AUM and the new business premium, a back-of-the-envelope calculation suggests a valuation of around 7-8 Lakh crore.
This means that even if the government sold 10% of its stake, the IPO could generate approximately 80,000 crores. A thorough understanding is very important before investing, especially in LIC-IPO, as there are many complexities, and I never said that complexities are problems. No, at all. But still, investment involves money and prior thinking, and all the important considerations are important.
Information about investors
The LIC IPO has the potential to attract 20 crores of new investors. If the government provides some incentive to unitholders by providing reservations, this could increase the equity rates offered to investors. Policyholders would be entitled to up to 10% of the LIC IPO issue size, while the government would remain the majority shareholder and retain management control, protecting policyholders’ investment.
The Life Insurance Corporation of India is a well-known brand with a solid financial standing and a strong market presence. Investing in LIC could significantly benefit investors. In the June quarter, the company earned more than Rs. Ten thousand crores in stock market profits. Because of its strong fiscal position, large fund size, and association with the government, LIC is a lucrative investment opportunity for many. Now investing in it or not is totally up to you.
- The country has a massive network of LIC agents. According to the Life Insurance Council, there were 13.53 lakh LIC individual agents as of March 31, 2021, compared to a total of 11.01 lakh agents for over 20 private life insurers.
- Life insurance plans, endowment plans, whole life plans, money back plans, term insurance plans, and insurance riders are all available from the company.
- According to LIC’s 2019-20 annual report, the company had a roughly 70 percent market share in the life insurance space.
- LIC also operates the following businesses in addition to life insurance: LIC Housing Finance, LIC Mutual Fund, LIC Pension Fund, and LIC Cards Services. IDBI Bank also acquired by LIC in 2019.
- LIC employs over 1.14 lakh people. LIC also has foreign branch offices in Fiji (Suva and Lautoka), Mauritius (Port Louis), and the United Kingdom (Wembley).
But you need to know
- It is up against many private players who provide better service to policyholders.
- As a PSU, LIC is subject to certain constraints.
- LIC must also modify its internal policies in response to changes in the country’s fiscal/monetary policies.
The date would finalized soon. This is a well-known fact, and nothing can be said with surety here. IPO and investment things are full of uncertainties. The important facts mentioned above are crucial enough to consider before taking any step. The pros and cons have also been discussed here, but the description of the investor is the best thing to be considered. These things are helpful to make your mind.