LIC shares: Down 7% in 2023 so far, where is this stock headed?
LIC last week reported a near fourteen-fold surge in first-quarter profit, as it moved money to a shareholders' fund to shore up its bottom-line.
- Aug 15, 2023,
- Updated Aug 15, 2023 11:02 AM IST
Life Insurance Corporation of India (LIC) Q1 results slightly missed the quarterly analyst estimates as the key bread-and-butter segments of Par (participating) and Group de-grew on YoY basis, even as non-Par (non-participating) segment managed to grow on YoY basis. Analysts said APE growth was soft but is expected to pick pace. A few of them agree valuations are inexpensive and that the stock has potential to deliver 15-43 per cent in the next 12 months.
Even as YES Securities has downgraded the stock to 'Hold' from 'Buy', its target price on the stock at Rs 775 suggests a 15 per cent potential upside.
"VNB margin has been under pressure mainly due to product re-pricing to make LIC products more competitive. These pricing changes are not necessarily permanent and LIC will keep reviewing the same. Changes in the interest rate environment have also had an impact on VNB margin. The net VNB margin of the Group business, on the other hand, has improved from 10 per cent to 13.9 per cent on the back of greater contribution from Annuity business and better persistency outcomes. As a result, overall net VNB margin inched up 6 bps YoY," YES Securities said.
The insurance company last week reported a near fourteen-fold surge in first-quarter profit, as it moved money to a shareholders' fund to shore up its bottom-line. The company posted a profit after tax of Rs 9,544 crore for the quarter ended June 30 compared with Rs 683 crore a year ago. LIC’s key strengths include a large customer base (27.8 crore in-force individual policies), huge agency network (accounted for 50.9 per cent 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, said JM Financial.
The brokerage said LIC's valuation at 0.5 times FY25 EV is undemanding and that it expects LIC to rerate ahead. The brokerage has a target price of Rs 940 on the stock. ICICI Securities, which has a target of Rs 917 on the stock, said valuation multiple adequately captures the risk of EV sensitivity to market movement.
"We expect volume and margin to recover during the year. While timing differences will likely lead to catch-up in premium growth in the group segment, margins typically improve gradually over the year as cost is absorbed over a higher premium base," it said.
Motilal Oswal Securities said LIC has the 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 organisation requires a superior and well-thought-out execution plan, it said.
"We expect LIC to deliver a 15 per cent CAGR in APE over FY23-25, thus enabling a 27 per cent VNB CAGR. However, we expect operating RoEV to remain modest at 10.9 per cent, given its lower margin profile than private peers and a large EV base. LIC is trading at 0.6 times FY24E EV, which appears reasonable, considering the gradual recovery in margin and diversification in the business mix," said Motilal Oswal Securities, which has a target of Rs 850 on the stock.
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Life Insurance Corporation of India (LIC) Q1 results slightly missed the quarterly analyst estimates as the key bread-and-butter segments of Par (participating) and Group de-grew on YoY basis, even as non-Par (non-participating) segment managed to grow on YoY basis. Analysts said APE growth was soft but is expected to pick pace. A few of them agree valuations are inexpensive and that the stock has potential to deliver 15-43 per cent in the next 12 months.
Even as YES Securities has downgraded the stock to 'Hold' from 'Buy', its target price on the stock at Rs 775 suggests a 15 per cent potential upside.
"VNB margin has been under pressure mainly due to product re-pricing to make LIC products more competitive. These pricing changes are not necessarily permanent and LIC will keep reviewing the same. Changes in the interest rate environment have also had an impact on VNB margin. The net VNB margin of the Group business, on the other hand, has improved from 10 per cent to 13.9 per cent on the back of greater contribution from Annuity business and better persistency outcomes. As a result, overall net VNB margin inched up 6 bps YoY," YES Securities said.
The insurance company last week reported a near fourteen-fold surge in first-quarter profit, as it moved money to a shareholders' fund to shore up its bottom-line. The company posted a profit after tax of Rs 9,544 crore for the quarter ended June 30 compared with Rs 683 crore a year ago. LIC’s key strengths include a large customer base (27.8 crore in-force individual policies), huge agency network (accounted for 50.9 per cent 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, said JM Financial.
The brokerage said LIC's valuation at 0.5 times FY25 EV is undemanding and that it expects LIC to rerate ahead. The brokerage has a target price of Rs 940 on the stock. ICICI Securities, which has a target of Rs 917 on the stock, said valuation multiple adequately captures the risk of EV sensitivity to market movement.
"We expect volume and margin to recover during the year. While timing differences will likely lead to catch-up in premium growth in the group segment, margins typically improve gradually over the year as cost is absorbed over a higher premium base," it said.
Motilal Oswal Securities said LIC has the 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 organisation requires a superior and well-thought-out execution plan, it said.
"We expect LIC to deliver a 15 per cent CAGR in APE over FY23-25, thus enabling a 27 per cent VNB CAGR. However, we expect operating RoEV to remain modest at 10.9 per cent, given its lower margin profile than private peers and a large EV base. LIC is trading at 0.6 times FY24E EV, which appears reasonable, considering the gradual recovery in margin and diversification in the business mix," said Motilal Oswal Securities, which has a target of Rs 850 on the stock.
Also Read: Stock market holiday: BSE, NSE to remain closed today on account of Independence Day
Also Read: Federal Bank, Tata Steel, HUL, Infosys, REC, ZEEL shares: MFs bought stakes in these stocks in July