Thread by @sritara

Thread on #LICIPO and valuation

1 Brief assessment from my hospital bed on LIC valuation based on DHRP filed with SEBI on Feb 13. The Govt plans to offload 5% of its stake, no fresh issue of shares. This means 31.625 crore shares will be offered for sale.

2. The real meat of the DHRP, which is relevant for the valuation of #LICIPO, is the section on the calculation of the Indian Embedded Value (IEV).

3. Most strikingly, the IEV at the end of Sept 2021 was Rs. 5.397 lakh crores, an increase of a whopping 465 % over the IEV computed for March 2021, just 6 months earlier!

4. This was mainly account t of the present value of future profits increasing from about Rs. 1.05 lakh crores to Rs. 5.47 lakh crores. What explains this?

5. This was mainly because of the way policy holders of LIC are being gypped. While participating policy holders’ share of surplus is to be progressively reduced from 95 per cent to 90 per cent by 2025, their access to profits from non-participatory policies is now shut.

6 Instead, the shareholders have full charge of profits on this account. It does not appear that the value of the assets built over decades through policy holders contributions have been apportioned fairly to policyholders.

7 Instead, they seem to have been usurped by not just the existing shareholder (GoI) but through it to the new body of shareholders through the IPO. This is a serious breach of trust.

8 The IEV attributed to #LIC could well be an undervaluation of its real worth, especially because of the way its assets, including fixed assets have been valued.

9 (Last) Since the IEV serves as the basis for pricing the #LIC share there is a significant possibility that the share may be underpriced. Remember the #IRCTC float?

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