Over the last 3 decades, the Indian government has focused on allowing various Public Sector Units to have their own management structure, free from the bureaucratic maze. They do it through divesting companies that no longer need socialist diktats from them. The latest entrant in the list of autonomous companies is LIC. The state-run enterprise looks all set to become the second-largest valued company in India with its IPO listing.
LIC to rack up biggest ever IPO
According to reports available in the public domain, Life insurance Corporation (LIC) will be filing its IPO prospectus by the end of this month. The estimated value of the public issue is Rs 15 lakh Crores. It is the biggest value of IPO ever filed by an Indian firm. The fact that it comes from a Government-owned entity is an indication of India’s growing stature.
The embedded value of IPO is expected to be around 4-lakh Crores. Embedded value is the statistical measure of investors’ interest in an insurance company. It is the sum of estimated future profits (according to current inflation rates) and funds belonging to shareholders that have been accumulated in the past (also known as Net asset value).
Record numbers are an indication of investors’ confidence in future of India
The market share of IPO is expected to be four times that of embedded value. It will depend on investor appetite, profitability outlook, and trends in the industry. Valuation of 15-Lakh crores makes LIC stand among a coveted group of companies like Reliance Industries Ltd (valuation of 17 lakh crores) and Tata Consultancy Services (valuation of 14.3 lakh crores).
“If investors agree with those calculations proposed by the government, LIC would join the league of India’s biggest companies – Reliance Industries Ltd and Tata Consultancy Services Ltd – that enjoy a market capitalisation of Rs 17 lakh crore rupees and Rs 14.3 lakh crore, respectively,” a Bloomberg source informed.
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Modi Government is not in the business of doing business
Modi government has liberalised investment rules to ensure that companies willing to invest do not face any bureaucratic hindrances. Earlier rules regarding foreign firms not investing in LIC have been removed which led to an increase in the market value of IPO.
LIC’s IPO is a progression in Modi government’s policy of Minimum government-Maximum governance. A huge amount of companies in India are owned by Government. Despite being mired by bureaucracy, these entities keep functioning, sucking up taxpayers’ money. LIC is indeed an exception in that aspect. Still, the government wants to make sure that the company competes with the best insurers all around the world.
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The year 2021 had been the year of IPOs in India. Nazara Technologies, Zomato, CarTrade, Freshworks, Nykaa, Policybazaar, Paytm, MapmyIndia were some famous names that cashed in on the public’s trust. 2022 is expected to start with a bang through LIC’s offerings. This will work as a guiding force for other government-owned companies to increase their efficiencies.