60% Dividend: Biggest Ever IPO, 2nd Largest PSU, LIC To Pay Its Highest Reward; BUY, Rs 1,270/TP By Motilal

Life Insurance Corporation Of India (LIC) is the second largest PSU stock in India. However, unlike other CPSEs or PSUs, LIC India which is the largest life insurer in the country, does not hold any Maharatna status. This PSU giant has announced a massive dividend reward for its investors to the tune of Rs 6 per share. YTD, LIC is up by 19% on BSE, should investors buy this stock further?

Firstly, the reason why LIC or SBI, the two leaders of the PSU section, are not described as Maharatna companies is that they are beyond that status in terms of balance sheet and have the potential for far greater achievements, coupled with enhanced autonomy and independence.

With SBI already paid a hefty dividend of Rs 13.70 per share this year, it is now LIC's turn.

LIC Dividend:

LIC has announced a final dividend of Rs 6 per equity share for the financial year ended March 31, 2024, subject to declaration by Members of the Corporation in the Annual General Meeting (AGM).

The insurer has fixed July 19, 2024, as the "Record Date" for the purpose of ascertaining the eligibility of members of the Corporation for the proposed final dividend. Accordingly, the ex-dividend date is also July 19.

To be eligible for LIC's upcoming dividend, investors would be required to hold their shares by the end of the record date which is July 19.

This final dividend is in addition to the interim dividend of Rs 4 per share that LIC paid earlier in March 2024 after turning ex-dividend on February 21, 2024.

Together, LIC will pay Rs 10 dividend or 100% in FY24, making it the highest dividend payout since its biggest IPO and listing in Indian market history. In the previous financial year, the dividend payout was of Rs 3 per share by LIC, and Rs 1.50 or 15% in FY22.

LIC launched India's biggest IPO of Rs 21,008.48 crore in May 2022 and listed on BSE and NSE on May 17.

LIC Share Price:

On BSE, LIC's share price is currently at Rs 1017.90 apiece, down marginally with a market cap of Rs 6,43,821.52 crore, making it the second most valued PSU company after SBI has a m-cap of Rs 7.41 lakh crore.

LIC stock's 52-week high and low are at Rs 1,175 and Rs 593 apiece respectively.

YTD, LIC is up by 19%, while in a year, the stock rallied by 69%.

Should You BUY LIC Shares?

In its latest research report, brokerage Motilal Oswal said, "Life Insurance Corporation (LIC)'s 4QFY24 PAT grew 2.5% YoY to INR137.6b. For FY24, LIC's PAT rose 11.8% YoY to INR406.8b. Net premium grew 15.6% YoY to INR1.52t in 4QFY24. Market share in premium dropped to 58.9% in FY24 from 62.6% in FY23. VNB (net) was flat YoY at INR36.45b, whereas APE grew 16% YoY to INR199.5b in 4QFY24. Thus, the VNB margin (net) contracted to 17.2% in 4QFY24 vs. 19.4% in 4QFY23. For FY24, LIC's VNB margin came in at 16.8% (vs. 16.2% in FY23)."

From its management commentary, Motilal Oswal highlighted that LIC is further strengthening its presence in tier 2-3 towns through the agency transformation project. LIC wants to be present in every Panchayat in FY25. Agents with 50+ years of age account for 35% of the total agency force. These agents contribute to more than 45% of the total premium income.

Additionally, LIC has enhanced benefits in the group business. The benefit structure and changes in risk-free rates have affected margins in the group business. LIC has increased payouts for annuity business. Movement in risk-free rates has hurt the overall margins for LIC.

Moreover, as per the brokerage, LIC is contemplating a foray into the health insurance sector and should be
assessing the potential acquisition prospects. Currently, LIC is already selling fixed-benefit health insurance products.

On the valuation, LIC 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 an 11% CAGR in APE over FY24-26, thus enabling an 18% VNB CAGR."

However, the brokerage also said, "We expect operating RoEV to remain modest at 11.5% in FY26, given its lower margin profile than private peers and a large EV base. We have maintained our VNB estimates for FY25/FY26. With the growth in the share of the non-Par segment, we expect an improvement in VNB margin (~19% by FY26). Reiterate BUY with a TP of INR1,270 (0.8x FY26E EV)."

LIC Earnings:

The behemoth's PAT for the year ended March 31st 2024 was Rs. 40,676 crore as compared to Rs. 36,397 crore for the year ended March 31st 2023.

Also, LIC had changed its accounting policy in September 2022 regarding the transfer of amount about the accretion on the available solvency margin from Non-Participating Policyholders account to Shareholders account and accordingly transferred total amount of Rs. 29,518.75 crore (net of tax) in the financial year 2023-24 compared to Rs. 27,240.75 crore in the FY2022-23, which included an amount of Rs. 4,542.31 crore about the quarter ended March 31, 2022.

In terms of market share measured by First Year Premium Income (FYPI) (as per IRDAI), LIC continues to be the market leader by market share in the Indian life insurance business with an overall market share of 58.87%. For the year ended March 31st 2024, LIC had a market share of 38.44% in Individual business and 72.30% in the Group business.