Buy LIC For 20% Gain, Record Date For Final Dividend Fixed

Motilal Oswal, renowned brokerage firm has given buy tag to Life Insurance Corporation of India Ltd. for a potential upside of 20%. Life Insurance Corporation (LIC) has maintained its market leadership position in the life insurance industry underpinned by its strong brand, vast distribution, and superior customer-connect despite the advent of a large number of private players.

1. LIC Stock Outlook

The current market price of the stock is Rs 702.65 apiece. The stock has touched a 52-week high of Rs 949 apiece and 52-week low of Rs 650 apiece. According to Motilal Oswal, If you buy the stock of LIC at the current market price of Rs 693, it can give you a potential return of 20% with an estimated target price of Rs 830 apiece.

2. LIC maintains its Numero Uno position in market

LIC has maintained its Numero Uno positioning in the market even as it differs in its growth strategy v/s private players on - Distribution (Agent dominated v/s Banca for private), Product Mix (Traditional heavy v/s ULIPs, Non-PAR, Protection for private), and high mix of Single Premium (82% of total NBP v/s 47% for private in FY22) with heavy reliance on Group Business (72% of total NBP v/s 39% for private in FY22).

While the focus on profitable growth will compel LIC to reassess its growth trajectory, maneuvering such a large franchise will be a challenging task and requires superior execution over the next few years. We estimate LIC to report ~10%/8% CAGR in NBP/APE over FY22-24E.

3. Annuity is a key growth driver

LIC enjoys a high market share in the Annuity segment (77% in FY21) due to its strong positioning in the group business. The share of Annuity in total new business mix stood at 21% in FY21. Annuity has enabled LIC to report high VNB margin of 118% in the Non-PAR segment and it has an immense growth potential. However, private players are also catching up fast as they have reported 23-131% CAGR over the past three years (FY19-22).

4. Modest presence in Protection business

LIC has a very modest presence in the Protection business with total Protection APE of INR2.1b in 9MFY22. This was 20-39% of the other four largest private insurers. With most private players implementing tariff hikes over the recent months, the competitiveness of LIC in this product has improved and we estimate its Protection volumes to increase over the coming years.

5. Valuation

LIC has all the levers in place to maintain industry leading position and ramp up growth in the highly profitable product segments (mainly Protection and Non-PAR Savings / Annuity). However, changing gears for such a vast organization requires superior and well-thought execution that also has to endure frequent rotation at the top management level. We estimate LIC to deliver approximately 10% CAGR in NBP during FY22- 24 while VNB margin is likely to improve to 13.6%. However, we estimate its operating RoEV to remain modest at ~9.7% on lower margin profile than private peers. LIC's valuation at 0.7x FY24E EV appears reasonable considering the gradual margin recovery and diversification in business mix. Hence, we initiate coverage with a BUY rating and a TP of INR830 based on 0.8x FY24E EV.

Key downside risks: Key downside risks include: a) a slow ramp up of individual Protection and Non-par savings, b) low share and productivity of banca channel and c) a sharp correction in equity markets.

6. About LIC

Life Insurance Corporation of India is an Indian statutory insurance and investment corporation headquartered in Mumbai, India. It is under the ownership of Government of India. LIC is Indian state-owned insurance group and investment company. It came into existence in 1956 on 1ST September. The market capitalization is Rs 444,425 crore.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal Financial Services. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.