LIC IPO A Sign Of Strength Amidst These Market Conditions, Says Chairman MR Kumar
Life Insurance Corp. of India, India's largest life insurer, is set to launch its initial public offering on May 4. The issue, curtailed in size and valuation, will brave global headwinds to raise Rs 21,000 crore. LIC has priced shares at Rs 902-949 apiece.
LIC Chairman MR Kumar, in an interaction with BloombergQuint on the sidelines of the IPO press conference, defended the timing, saying "it is a sign of strength to come with the issue when most big IPOs are put on the backburner".
Watch the full conversation here:
Edited excerpts of the interview:
What is the kind of concession LIC has received from SEBI because the size of the IPO doesn't match with SEBI regulations?
MR Kumar: One dispensation that we have got from SEBI is to lower the minimum [stake sale] from 5% to 3.5%. That was necessitated because of the war and [factors] that whether the appetite is there for the market to take on such a big amount. So, that is a dispensation SEBI [has given us].
What about the anchor book regulation on lock-in period of 30 and 90 days? The new rules were supposed to be implemented.
MR Kumar: Those are as usual... I believe it is 30 days.
What about the public float? Eventually, you have to reach 10% within two years and then finally 25%. Is there a timeline that you have given to SEBI?
MR Kumar: If you see the RHP, there is no such time given... But it's a government call... At least for now, with the kind of situation we have, it may take some time for even the government to decide whether they want to go ahead with a follow-on [offer] immediately. I don't think it is good.
You mentioned that at one time LIC expected a valuation of Rs 65,000 crore to Rs 70,000 crore for 5%. We have come down to Rs 21,000 crore for 3.5%, which is Rs 30,000 crore for 5%. Isn't it a desperate attempt to list at this point in time? You could have waited as there is a huge headwind coming through from Covid resurgence, Russia-Ukraine War, Fed tightening and, in India, RBI tightening. You could have waited for some of these factors to ease so that you have a better investor flow?
MR Kumar: I wouldn’t call it desperation. In fact, it is a sign of strength. I would say that even in these conditions where most IPOs are put on the backburner, we are going ahead...and that strength comes from the fact that we know the market. We have been investment managers for decades now, we know how things pan out and...we have the confidence that this can happen.
Won't there be an overhang of this on your share price because you're coming out with 3.5%, and subsequently you [will] have to come up with an issue every year to reach that threshold (25%)?
MR Kumar: Share price will probably depend a lot more on the way we perform and the way we grow and what kind of...shareholder value we create. Once you are able to do that, I don't think there'll be any problem in further dilution later.
We saw HDFC Life coming out with earnings. They are inching towards 30% VNB margins and you are sub-10%. In fact, your margins have fallen from 9.9% at the end of March 2021 to 9.3% in September 2021. Where are we going to see the VNB margin and what kind of levers you have to push that margin beyond 10%?
MR Kumar: If you look at the listing of private peers, whenever that happened, and if you compare that with what we are doing at this point of time would make better sense. Because then after the listing a lot of things have happened and that will happen here too. We will be able to grow, that [Chief Actuarial KR] Ashok would be able to explain.
KR Ashok: Actually, what you are saying is true, but when you look at the other players when they listed, they were also in the same range where we are now. And if we look at our margins on non-par products, they are quite high at more than 80%. So, with a focus on non-par products, we expect that the VNB margins to move.
You spoke about the embedded value and you said that the economic variance for LIC is different from what it is for private players. What is the kind of impact that can have on your embedded value because you have a much longer history and variance will be also much higher when you calculate the embedded value?
KR Ashok: [A] major component of this economic variance is mark-to-market gains. LIC has a very big equity portfolio .... [of] around 25% of our book size and we have quite a good number of stocks in there, mostly blue chips. And there has been a good movement in the stocks, over the period and that was not taken credit for in the regular valuation because .... we cannot take credit for that. In the IEV [insured's estimated value] we can take credit for that. So that is one of the reasons why movement appears to be quite big.
So the market valuation would have a major impact on the IEV. If you see Q4 the market has corrected significantly, that means that your IEV would come down at the end of Q4?
KR Ashok: Actually, it has some impact because we look at the filing in the DRHP where we have given the elements, which actually will perform the calculations. The sensitivity of the IEV to various parameters is listed here. Yes, it is true that the IEV is sensitive to equity changes.
MR Kumar: Let me add to what Ashok said that ... if you remember April 2020, Covid and markets crashing ... we survived that. And we have a long history and legacy of .... buy and hold, we are not very much into churning. So that being the case unless there is a one-off event ... there is not going to be a major impact.
Mr. Kumar, 10% of the issue is for policyholders. You ran a big campaign asking policyholders to link PAN and Demat. Can you give us an idea of what is that pool of that policyholders who have Demat ready and can invest in the IPO?
MR Kumar: That I would not know because it's not part of the plans and I think more than two crore policy makers have indicated and given their PAN numbers. Now whether they have given it because they have the Demat or they have just given it because we asked for it is something that I will not be able to say.
Two crore is the pool which can invest in this. Also, you have mentioned in the RHP that employee quota will be up to 5% but it is much lower, less than 1%. Why is that?
MR Kumar: I think even if everybody (employees) applies for the maximum limit, that is all they will be able to get. [There are] 15 lakh shares to be allotted [under this category, and] we have one lakh employees ... So ultimately ....possibly everybody is going to get 15 shares.
What is the strategy of pushing your product through the digital channel?
MR Kumar: We have a lot of work labs we have recently tied up with, Policybazaar as well. We have the Common Service Centre—CSC of government, which has more than three lakh outlets in the country.
What percent of your policies are sold online currently?
MR Kumar: This is something we started very recently ... We are working on a fully automated digital platform unlike the one we had earlier.
What is your strategy for the IDBI stake which you have because there is an RBI requirement and IRDAI's. You are going to bring it down?
MR Kumar: We have some time left both as per the RBI and IRDAI guidelines, but I think I have said this before that we would like to have a continuing relationship with the bank because ... they have been the best partner for us.
Will you retain a minority stake?
We will have some stake to ensure that as a bank partner, as a bancassurance partner, you continue to have them with us.
If IDBI gets diversified, do you really need to take that call on the home loans ?
MR Kumar: Maybe not so that's why I said it will depend on how that part (IDBI Bank divestment) happens.
One final question to you sir, if you look at the growth plan in conjunction with your digital plans, what is the kind of growth rate you are expecting because the industry is growing at 9%? What is the kind of rate or multiples you will grow at?
MR Kumar: If we look at premium, we would probably like to grow at 15-20% in the next two to three years; [and for] polices at 10-12%.
What about the value of the new business?
MR Kumar: : There also we should grow that level.
KR Ashok: That all depends on how the mix of business happens. If our strategy to bring non-par products pans out well, it will grow at a faster rate than the (industry).