LIC Share To Give Better Returns Than FDs; Brokerages Expect 43% Upside In Life Insurer After Q1

India's largest life insurer, LIC is set to give better returns than FDs in the near term. After launching the largest-ever IPO in the Indian market to the tune of Rs 21,008.48 crore, LIC shares have corrected significantly since listing. This enables investors to form both short-term to long-term positions in LIC shares as the insurer is factored to give double-digit returns. It is also among the top PSU stocks to buy after the 77th Independence Day. That being said, post Q1 earnings, brokerages have recommended buying LIC shares.

The potential upside in LIC shares is up to 43% in the long-term, and between 17% to 28% in the short term ahead. This is far better than 1-year FDs that offer up to 9% rate on deposits.

On Monday, LIC shares witnessed profit booking and hence they ended at Rs 655.50 apiece down by 0.7% on BSE. LIC's market cap is Rs 4,14,603.60 crore.

Last week, on Friday, LIC shares gained by nearly 3% to end at Rs 655.50 apiece on the exchange.

LIC's shares have recorded an upside of nearly 6 in a month, while its six-monthly gains are over 9%. Since listing on May 20, 2022, LIC shares have dropped by nearly 21% on BSE.

Why buy LIC shares?

For the next 3 months to 6 months, LIC shares have a potential upside of between 17.5% to over 28%. In its power-packed PSU picks report on the occasion of Independence Day, LKP Securities has set a target of Rs 770/840 on LIC shares in the next 3-6 months. LIC shares are recommended to buy in the range of Rs 655 - 670.

In its future outlook, LKP's note said, "The Life Insurance Behemoth is likely to close the current fiscal with Net Premium of almost Rs 5000bn and has all the levers in place to maintain its Industry leading position," adding, "While it's share of Par Products in the Individual Business remains at 90%, the ULIP products did drag it's Non- Par margins during Q1. However, we expect the Insurer to fare much better in August & September which should improve margins."

Further, LKP's note highlighted that LICI I has given a consolidation breakout. Besides, it is sustaining above 50ema.RSI is in a bullish crossover on the weekly timeframe. Hence, the trend is likely to remain positive over the short term.

On the other hand, after the Q1 earnings, JM Financial has set a massive Rs 940 apiece target price, valuing LIC at 0.8x FY25E EV. This indicates a little over 43% potential upside in LIC stock from the current price levels.

In its review note, JM Financial said, "Management remains confident of recouping the lost market share and expects the growth to make a comeback in coming quarters. LIC's strong agency network of 1.34mn agents as of Jun'23 (with 50.9% market share of individual agents) remains the major sourcing channel for LIC contributing to 96.5% of the insurer's individual NBP in 1QFY24. Incrementally, banca and alternate channels are also gaining prominence with their share increasing by 56bps YoY to 3.22% in 1QFY24. LIC's new business margins (NBMs - net) stood at 13.7% (+10bps YoY, - 560bps QoQ). While the sequential drop is on account of seasonality (4Q is the strongest quarter), the YoY uptick of 10bps was driven by the benefits of change in product mix and the impact of assumptions though moderated by economic variance. While the NBMs in individual business saw a decline to 13.5% (-230bps YoY), it was offset by an improvement in group business NBMS (+390bps YoY to 13.9%). We believe LIC would be able to maintain its NBMs in the 15-16% range aided by favourable product mix and cost controls."

Also, JM Financial highlighted that the current valuation of LIC of 0.5x FY25E EV is undemanding and it expects it to rerate on the back of its key strengths: large customer base (278+mn in-force individual policies), huge agency network (accounted for 50.9% of total industry agents as of Jun'23), strong brand equity and, importantly, the sovereign guarantee (on the sum assured and bonuses) attached to LIC policies.

Hence, JM's note said, "LIC's key strengths include a large customer base (278+mn in-force individual policies), huge agency network (accounted for 50.9% of total industry agents as of Jun'23), strong brand equity and, importantly, the sovereign guarantee (on sum assured and bonuses) attached to LIC policies; all these factors, along with cyclical tailwinds for the insurance sector, should help in LIC's stock rerating. We expect the EV to improve, aided by continued growth in APE with minor improvement in VNBs as well. Current valuations of LIC of 0.5x FY25E EV are undemanding and we expect it to rerate on the back of its key strengths highlighted earlier. Maintain BUY rating with a TP of Rs 940, valuing LIC at 0.8x FY25E EV."

Robust June 2023 quarter!

During the June 2023 quarter, LIC reported a nearly 14-fold jump in its net profit to Rs 9,543.71 crore as against Rs 682.88 crore in Q1 of the previous fiscal. On an Annualised Premium Equivalent (APE) basis the total premium was at Rs 9,532 crore for the quarter. Of this, 62.42% (Rs 5,950 crore) was accounted for by the Individual business and 37.58% (Rs 3,582 crore) by the Group business.

Also, in the quarter, within the individual business, the share of Par products on an APE basis was 89.78% (Rs 5,342 crore) and the balance of 10.22% (Rs 608 crore) was due to Non-Par products. The non-par APE has increased from Rs 500 crore in Q1FY23 to Rs 608 crore in Q1FY24, registering a growth of 21.6%. Therefore LIC's non-par share of Individual APE which was 7.75% in Q1FY23 has grown to 10.22% in Q1FY24.

As of June 30, 2023, LIC sold a total of 32,16,301 policies in the individual segment.

LIC's persistency ratios on a premium basis up to the quarter ended June 30 2023 for the 13th month and 61st month were 78.37% and 62.73% respectively. In terms of market share measured by First Year Premium Income (FYPI) (as per IRDAI) LIC has maintained its leadership in the Indian life insurance business with a market share of 61.42% for the quarter.

Overall, its total premium income stood at Rs 98,363 crore for the quarter ended June 30th, 2023 comprising of Individual New Business premium income of Rs 10,462 crore, Individual Renewal premium income of Rs 52,311 crore and total Group Business premium income of Rs 35,590 crore. Total Individual business premium for the quarter increased to Rs 62,773 crore.

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.