On Sunday, the Life Insurance Corporation of India (LIC) filed its draught red herring prospectus (DRHP) for its massive first public offering (IPO) (IPO). According to the DRHP, the government-owned insurer will issue up to 31,62,49,885 (31.62 crores) equity shares with a face value of Rs 10 through an offer for sale (OFS), accounting for 5% of its equity ownership. No new shares will be issued. As of September 30, 2021, the LIC’s embedded value was Rs 5,39,686 crore, according to the DRHP.
To arrive at their IPO value, life insurers might use Embedded Value (EV) as one of the most effective methods of calculation. The EV is calculated as the sum of all future income from a current business plus net worth (which includes capital).
The HDFC Life insurance firm is valued at 4.72 times its intrinsic value. Exide Life was recently bought for Rs 6,687 crore at a 2.5 times valuation. ICICI Prudential Life and SBI Life, the other two listed life insurance companies, are valued at roughly 3 times their respective EVs.
If the country’s largest insurer is valued at 3-4 times its current market value, the company’s market capitalization should be in the range of Rs 16.19 lakh crore to Rs 21.58 lakh crore. If we use the cautious estimate and double it by 2 or 2.5, the sum is roughly Rs 10 to Rs 13 lakh crore.
Given that just 5% of the total market capitalization will be used for the IPO, which would total 31,62,49,885 shares, the value per share will range from Rs 2,560 to Rs 3,413 for multiples of 3X and 4X, respectively. The value per share is Rs 1,706 and Rs 2,133 at the conservative multiples of 2X and 2.5X.