LIC’s Q3 net profit surges to ₹235 crore on economic rebound

Aided by an economic rebound, IPO-bound Life Insurance Corporation (LIC) recorded a net profit of ₹235 crore in third quarter this fiscal, far higher than the net profit of ₹0.9 crore in same December quarter in the previous fiscal. 

In the first nine months this fiscal, its net profit surged to ₹1,671 crore from ₹7 crore in the same period in previous fiscal, sources said. 

This latest Q3 bottomline performance is, however, not reflected in the Draft Red Herring Prospectus (DRHP) — filed on February 13 – now approved by SEBI recently, but would most likely get incorporated in final red herring prospectus that the government is expected to file in the coming days, they added.

Total premiums collected during the third quarter stood at ₹97,761 crore against ₹97,008 crore a year earlier. First year premiums during the quarter surged 10 per cent year-on-year to ₹8,748 crore (₹7,957 crore).

The insurance behemoth’s financial performance has also been bolstered by the change in its fund distribution policy that allowed shareholders to receive a higher share in surplus, sources added. The LIC’s Q3 performance in 2020-21 was also weighed down by the pandemic-induced lockdown. 

In the run up to the LIC’s upcoming public listing, the government took several measures to make the insurance behemoth “IPO ready” including bringing corporate governance and disclosure norms in line with listed entities. It also brought in changes to the surplus distribution policy in line with private peers and has brought legal changes to enable shareholders (post listing) to obtain 5 per cent of the surplus from the participating fund, and 100 per cent of the surplus from the non-participating policyholders’ fund.

Earlier, the shareholders ( government being the sole owner with 100 per cent stake) received 5 per cent of the combined total pool of participating and non-participating funds. The change in distribution policy is expected to benefit public and institutional shareholders in the coming days post LIC’s listing.

Ukraine crisis

It maybe recalled that the government is looking to shed 5 per cent stake in LIC and mobilise at least ₹65,000 crore as divestment receipts through the offer for sale route. In the wake of ongoing Russia-Ukraine war and resultant global volatility in equity and commodity markets, the government is on a wait and watch mode as regards the timing and pricing of the LIC IPO.

While a section of government wants the LIC IPO to be completed before end March 2022, there is also a view that government may end up losing a tidy pile in the overall mop up if it were to rush through the offering in this current volatile market conditions. 

Embedded value

LIC’s embedded value, which is a key metric in the valuation of an insurance company in its public market journey, has been pegged at about ₹5.4 lakh crore as of September 30, 2021 by international actuarial firm Milliman Advisors.

Indications are that the government may go in for an EV multiple of 2-3 while taking LIC public. The LIC IPO would be the biggest IPO in the history of Indian stock market and once listed, LIC’s market valuation would be comparable to top companies like RIL and TCS. Till date, the Paytm IPO in 2021 was the largest ever fund raise in the IPO market at ₹18,300 crore, followed by Coal India (2010) at about ₹15,500 crore and Reliance Power (2008) at ₹11,700 crore.

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