LIC Stock: Should You Buy, Sell Or Hold?

Broking firm, Emkay Global has given a hold call on the stock of LIC. The firm has set a price target of Rs 750 on the stock of the company from the current market price of Rs 639.

LIC: Target price of Rs 750

According to Emkay Global, for H1FY23, LIC reported a mixed performance, where 36.7% YoY APE growth (Retail APE: 20.7% YoY and Group APE: 67.5% YoY) and VNB margin of 14.6% were better than our estimates, but the EV of Rs5.44trn was 3% below our estimates and largely flat (+0.85%YoY and +0.5% in H1FY23). "PAT at Rs166bn was way above our estimates, as the company chose to transfer surplus Rs143bn from its non-par fund to shareholders' fund. On net basis, LIC's H1FY23 numbers do not change our opinion on the fundamental challenges of slower growth and sticky cost leading to gradual market share loss in the retail segment and subpar profitability reflecting in poor Embedded Value (shareholder value) compounding. To reflect H1 developments, we adjust our estimates, leading to 6-8% cut in FY23-25E EV estimates. Currently, LIC is trading on FY23E P/EV of 0.7x. LIC's valuation is undemanding, but we do not see catalysts to drive a material re-rating of LIC's shares. We reiterate our Hold rating on the stock with our revised target of Rs750 (unchanged Sep-23E P/EV of 0.8x)," the brokerage has said.

 

Operating parameters broadly stable

According to Emkay Global, the insurance company's parameters were broadly stable. "Given its massive size and legacy book, operating parameters such as persistency, commission ratio, individual product mix, and opex ratios were broadly stable adjusted for one-offs. H1FY23 saw a spike in the opex ratio, led by Rs115bn additional provision for retirement benefits. Improvement in commission ratio was an outcome of higher group business. On 13th-month persistency, LIC at 77.6% remains poorer vs. private peers and 61st-month persistency of ~61% is slightly better than private peers; but adjusted for negligible ULIP in LIC's portfolio, the difference is not material," the brokerage has said.

Emkay Tweaks estimates

"To reflect H1FY23 developments, we have tweaked our FY23-25 estimates, leading to slightly higher APE growth, stable VNB margin, lower EV, and higher PAT and dividend. We expect LIC to continue transferring surplus from non-par fund to shareholders' fund to boost PAT and net worth to support a higher dividend and/or bonus share issuance. However, we continue to see the growth and cost challenges at LIC leading to inferior shareholder value creation, reflecting in lower EV growth and inferior operating RoEV. Despite undemanding valuation of FY23E P/EV of 0.7x, we maintain our Hold rating on the stock with our revised target price of Rs 750 (0.8x Sep-23E P/EV)," the brokerage has said.