Predicting the LIC Stock Price After IPO: Insights and Valuation Analysis

Introduction

The upcoming Initial Public Offering (IPO) of Life Insurance Corporation (LIC) is generating a lot of interest, especially among retail and institutional investors. The question on everyone's mind is: What will be the share price of LIC stock after its IPO? This article aims to provide insights and detailed analysis on the expected stock price range for LIC.

Market Demand and Supply

The listing price of the shares is determined by the market demand and supply, seeking to balance both with the purpose of maximizing the number of trades on the stock's debut. The process involves analyzing all the orders received for the shares, with the ultimate goal of setting a price that encourages trading.

Retail and Policy Holder Shares

Retail investors will be able to buy 15 shares at a price of Rs. 904 per share, resulting in a total investment of Rs. 13,560. Policy holders can buy 15 shares at a price of Rs. 889 per share, costing Rs. 13,335. High Net Worth Individuals (HNIs) will also have the opportunity to participate, with the price rising to Rs. 949 per share.

Expected Listing Price

Considering the current market conditions and the grey market premium of LIC, the expected listing price is in the red. This means there might be some initial selling pressure as the stock debuts.

Company Details and Valuation

According to the Draft Red Herring Prospectus (DRHP) filed by LIC, the insurance company will have up to 316,249,885 equity shares with a face value of Rs. 10 each. Additionally, an officer for sale (OFS) will represent 5% of the equity stake. As of September 30, 2021, the embedded value (EV) of LIC is Rs. 5,396.86 crore.

Valuation Using Embedded Value (EV)

For life insurance companies, one of the most accurate ways to determine the IPO value or market capitalization is by using the Embedded Value (EV). The IPO value is typically a multiple of the Embedded Value. Assuming LIC enjoys a similar valuation as other listed life insurance companies, the company's market capitalization should be around Rs. 16.19 lakh crore to Rs. 21.58 lakh crore.

Conservative Valuation Estimate

A conservative estimate of the value per share, assuming a lower multiple of 2X and 2.5X, would be Rs. 1706 to Rs. 2133. The formula used for this estimation is:

Price per share valuation × (percentage stake to be sold / 100) / number of shares to be issued

An official announcement regarding the price of the shares will be made a few days before the offer opens.

Conclusion

While the exact share price after IPO is uncertain, the embedded value and historical valuations of similar companies provide useful insights. Retail investors should carefully consider these factors before making an investment decision. The listing price is likely to be determined by market forces, with initial selling pressure a possibility.