LIC Shares Rise More Than 7% in Just Five Days; Analysts Project Up To 20% More Gains

Updated: Jul 17

LIC Share Price: After the brokerage house, Motilal Oswal rated the insurance behemoth as a "Buy," Life Insurance Corporation shares soared in early trade. According to them, a valuation of 0.7 times FY24E EV is appropriate. The paper noted, "Considering steady margin recovery and diversification in the business mix, LIC's valuation at 0.7x FY24E EV is acceptable, while significant vulnerability to equity market volatility remains an overhang. With a "Buy" rating and a target price of Rs. 830 per share, the brokerage firm has started covering LIC shares.

According to Motilal Oswal, LIC is expected to provide an NBP CAGR of about 10% between FY22 and FY24E, while the Value of New Business (VNB) margin is anticipated to increase to 13.6% due to an improved product mix and stronger profit retention. However, based on LIC's lower margin profile than private counterparts, it predicts that operational RoEV will remain modest at roughly 9.7%.

Over Monday's BSE closing price of Rs 692.50, Motilal's target price represents a 20% increase.

A delayed ramp-up of individual Protection and Non-par savings, a decrease in the share and productivity of the Banca channel, and a sharp downturn in the equities markets are among the major negative risks, according to the brokerage.

Because of its excellent location within the group company, LIC has a significant market share in the annuity area (77% in FY21). In FY21, annuities made up 21% of the overall new business mix. The annuity, which has tremendous growth potential, allowed LIC to report a high VNB margin of 180% in the Non-PAR category. Private players, however, are also quickly catching up, as seen by their reported 23–131 percent CAGR over the past three years (FY19–22), according to the study.

While the emphasis on profitable growth will force LIC to reevaluate its growth trajectory, Motilal Oswal believed that managing such a sizable business will be difficult and demand exceptional execution over the coming years.

Throughout FY22–24E, it anticipates LIC to record a % CAGR in New Business Premium (NBP) and 8% in Annualized Premium Equivalent (APE). Even at that level, the VNB margin for LIC will be less than half of what the majority of other private players will be producing, according to Motilal Oswal, even if the VNB margin is expected to increase to 13.6% during the period.

Currently, traditional savings products make up the majority of LIC's product mix, with low-margin PAR products accounting for 19% of the total NBP and 65% of APE in FY21. While the majority of the private players have concentrated on boosting their mix of high-margin non-PAR and protection products, LIC has continued to rely heavily on PAR products.

But, according to Motilal, "the company aspires to considerably increase the mix of non-par business, driven by consistent new product launches in the non-par market."

LIC's operating return on embedded value (EV), according to Motilal, may stay low at 9.7% because of its weaker margin profile compared to its private counterparts. A delayed ramp-up of individual protection and non-par savings, a low share and productivity of the Banca channel, and a significant correction in the equities market is the main potential risks for LIC.

Since LIC's stock was listed on the stock exchanges on May 17, 2022, its share price has dropped significantly. Investors received LIC shares for Rs 949 each, and they were listed at a discount on stock exchanges. The stock has lost nearly 34% of its value since the IPO's Rs 949 issue price.

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