LIC Shares Marks Record 9.8% Intraday Gain Since Listing: More Steam Left?

The largest life insurer in India, Life Insurance Corporation (LIC), saw a strong intraday spike of 9.83% in Friday's trading, reaching a high of Rs 682 a share and recording its largest intraday rise since listing in May 2022. The stock gained 9.71% from its previous wrap-up, closing at Rs 677.70 on the NSE, after opening at Rs 620.95 a share.

The substantial spike came about as a result of LIC's buy call from top brokerage firms, including BOB Capital Markets and Motilal Oswal. After the insurance giant launched three non-par products in H1 and set a goal of attaining double-digit growth in new business premiums for FY24, brokerage firms perceived enormous potential upside in the stock.

The insurance giant Life Insurance Corporation (LIC) plans to launch three to four new products in the upcoming months in an effort to boost new business premiums by double-digit growth during the current fiscal year. "We are projecting double-digit growth over the last year. We are going to achieve that because a recent trend is showing uptick in individual retail business. In order to further reinforce our commitment, we are going to launch some new attractive products," LIC Chairman Siddhartha Mohanty told PTI in an interview.

According to him, LIC plans to introduce one product during the first week of December in the hopes that it will find immense popularity. Speaking about some of the new product's features, Mohanty said that it will guarantee returns and that the policyholder will get 10% of the sum assured for the duration of their life after maturity. He exuded confidence that the new product will create disruption in the market as everybody wants to know how much he or she is paying and the returns one would get after 20-25 years, the PTI report stated.

"So, it is dual benefit for policyholders," he added. Mohanty said 2-3 more policies will be launched during the course of the year to achieve double-digit growth in new business premium.

Commenting on the valuation and view of LIC shares, Motilal Oswal said "LIC has levers in place to maintain its industry-leading position and ramp up growth in the highly profitable product segments (mainly Protection, Non-PAR, and Savings Annuity).

However, changing gears for such a vast organization requires a superior and well-thought out execution plan. We expect LIC to deliver a 3% CAGR (decline in FY24 and a sharp recovery in FY25) in APE over FY23-25, thus enabling a 9% VNB CAGR. However, we expect operating RoEV to remain modest at 10.5%, given its lower margin profile than private peers and a large EV base.

LICI is trading at 0.6x FY24E EV, which appears reasonable, considering the gradual recovery in margin and diversification in the business mix. We cut our VNB estimates to factor in the decline in VNB margins. However, we raise our EV estimates owing to better-than expected equity market returns. We reiterate our BUY rating with a TP of INR850 (0.7x Mar'25E EV)."

LIC Key Financial Updates

LIC's new business premium income (individual) sector saw a 2.65% rise in the first half of the current financial year, reaching Rs 25,184 crore, compared to Rs 24,535 crore in the same period last year. With an overall market share of 58.50 per cent in the life insurance sector, LIC is the market leader in terms of market share as determined by first-year premium income as per IRDAI.

LIC held a 40.35 per cent market share in the individual business and a 70.26 per cent market share in group business for the six months that ended on September 30. The insurance behemoth's assets under management (AUM) rose by 10.47 per cent to Rs 47,43,389 crore on September 30, 2023, from Rs 42,93,778 crore in the same period the previous year. During the first half of the current fiscal year or H1FY24, the overall expense ratio was 15.14%, down from 16.69% in H1FY23.

LIC Share Price Target

With maintaining a buy rating on the stock, the brokerage firm BOB Capital Markets said "The stock is currently trading at 0.6x FY25E EV, a ~75% discount to private listed peers which appears unwarranted. We value LIC at an unchanged 0.7x FY25E EV, a narrower ~70% discount to peers.

Based on our revised estimates, our TP changes slightly to Rs 767 (vs. Rs 770), which offers 26% upside - maintain BUY given the company's entrenched brand equity, market leadership, superior agency force, focus on high-margin products and robust claim settlement ratio."Shares of Life Insurance Corp of India (LIC), the nation's biggest insurer gained 10% and closed at a monthly high of Rs. 678.

Cumulative traded volume on BSE and NSE has increased from 7,62,275 to 8,50,732 over the past 3 days. Cumulative turnover during the same period increased from Rs 46.68 crores to Rs 52.23 crores. Brokerage firms such as Motilal Oswal, and BOB Capital in their report released in November feel that LIC is currently selling at a significant discount to its issue price.

The brokerages are under the impression that the company is making the right efforts towards increasing VNB by pushing its product mix towards non-participating and expansion in non-agency distribution channels. While BOB Cap has given a target price of Rs. 767, Motilal Oswal's target price is Rs. 850.

Given LIC's entrenched brand equity, clear market leadership and superior agency force, they believe the company has levers in place to maintain its industry-leading position and ramp up growth in the highly profitable product segments.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.