LIC shares at Rs 940? What JM Financial, others say on stock post Q4 results

May 26,2023

Domestic brokerages such as JM Financial and Motilal Oswal Securities have retained 'Buy' ratings on Life Insurance Corporation of India Ltd (LIC) post the life insurer's March quarter results, suggesting a target of up to Rs 940. Analysts find LIC's prevailing valuations as undemanding and see up to 57 per cent upside on the stock over the prevailing share price. 

JM Financial said current valuation of LIC at 0.5 times FY25E EV is undemanding and expects the stock to rerate on the back of strengths such as  large customer base (27.80 crore  in-force individual policies), huge agency network (accounted for 51.3 per cent of total industry agents as of March), strong brand equity and, importantly, the sovereign guarantee (on sum assured and bonuses) attached to LIC policies. Post LIC's March quarter results, JM Financial has retained its  'Buy' rating on the stock with a target of Rs 940.

LIC, Motilal Oswal Securities said, has the levers in place to maintain the industry-leading position and ramp up growth in the highly profitable product segments mainly protection, non-participating, and savings annuity.

That said changing gears for such a vast organisation requires a superior and well-thought out execution, Motilal Oswal said, as it expects LIC to deliver a 15 per cent growth in annualised premium equivalent (APE) compounded annually over FY23-25, thus enabling a 27 per cent VNB (value of new business) CAGR.

The brokerage target suggests 37.5 per cent potential upside for LIC over Thursday's closing price of Rs 603.60.

In a latest note on LIC, Motilal Oswal Securities said: "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."

LIC reported a profit four fold jump in profit at Rs 13,428 crore. Motilal Oswal said the sharp surge in profit was a result of the transfer of Rs 7,300 crore from the non-par segment to shareholders’ account pertaining to accretion on the available solvency margin in 4QFY23.  APE grew 12 per cent YoY (55 per cent QoQ) to Rs 19,139 crore while VNB stood at about Rs 3,700 crore, as VNB margin increased 476 basis points sequentially to 19.4 per cent.

The Individual business constituted 68 per cent of APE and group business accounted for 32 per cent of APE in FY23. In the Individual business, the share of PAR products remained largely stable at 91 per cent.

"Growth in the agency channel (Individual NBP) was modest at 7 per cent YoY. However, LIC is continuously training agents to sell non-PAR products. Agency contributed 96 per cent of individual NBP in FY23. The persistency ratio moderated sequentially for most cohorts other than the 25th month persistency, which grew 46 bps QoQ," it said. 

Motilal Oswal Securities has slightly raised its FY24 and FY25 VNB estimates by 4 per cent and 6 per cent, respectively.