LIC gets analysts premium post strong Q3 show
For Life Insurance Corporation of India (LIC), the start of the current fiscal turned out be a momentous one, as it managed to come out of a year-long bear grip since its listing in May 2022. The stock of LIC dipped to a low of ₹530.20 on March 29 last year, but since then it not only managed to regain its IPO price of ₹949, but also beat heavyweights such as ITC, Hindustan Unilever, Bharti Airtel and SBI to become the sixth most-valued firm. It currently commands a market capitalisation of ₹6.38-lakh crore.
The stock has risen over 121 per cent in the 11-month period (since its March 2023 low) to hit an all-time high of ₹1,175 on February 9 on the back of a strong set of numbers for the December quarter of FY24 and the first nine months of the current fiscal. However, since then, the stock is down over 16 per cent due to profit taking and overall weak sentiment towards PSU stocks.
Nevertheless, analysts are bullish about this stock and have increased the price targets following its strong Q3 show.
For the quarter ended December 31, 2023, LIC posted a 49 per cent increase in net profit, mainly aided by VNB (value of new business) margin during the quarter. VNB grew 46.3 per cent year on year and 31.6 per cent quarter on quarter to ₹2,634 crore, sequentially driven by expansion in margin. According to analysts, VNB margin for Q3-FY24 rose 472 basis points quarter on quarter to 20 per cent.
Brokerage firm YES Securities, in its note, pointed out that the LIC management has stated that the insurer was “in line with what they had committed at the time of listing and would continue their effort, which would lead to further improvement in margin”.
“LIC has seen growth in its new business premium as well as in its assets under management. It is also undergoing digital transformation and that is expected to cut expenses and improve margins in the future. However, the recent surge can mainly be attributed to the launch of new products that can enhance the growth of its new business premiums,” Sheersham Gupta, Director, Rupeezy (formerly AsthaTrade), told businessline.
According to him, a rally in LIC was due for a long time “as the insurer was trading at a much lower valuation compared to its peers. Despite this rally, its P/E ratio is only one-fifth of other private insurance stocks.”
Emkay Global in its note on LIC added that on the APE (annualised premium equivalent) front, LIC clocked 21 per cent year-on-year growth in Group APE in Q3-FY24, “bolstered by robust growth in the group term-life segment.” It added that LIC’s strategy stays pivoted on the rising share of non-par products in the product mix and on delivering absolute VNB growth. According to its note, the LIC management expects APE growth to improve from now, “propelled by product launches across categories”.
Bullish outlook
Gupta of Rupeezy said that there is a lot of value yet to be unlocked for the stock. “Additionally, growing awareness in the new generation about insurance and rising income levels will contribute to its growth.”
While YES Securities recommended “Add” rating for the stock, it revised its target price to ₹1,250. “We value LIC at 1.0x FY25 P/EV for an FY24E/25E/26E RoEV profile of 10.2/10.4/10.5 per cent,” it said in its note explaining its rating rationale.
Emkay Global said, “To bake-in the Q3-FY24 developments, we increase our VNB margin estimate by about 1 percentage point and of APE by about 3 per cent, which results in about 9-11 per cent growth in FY24E-26E VNB. After the stellar run-up in the stock price post our upgrade (about 57 per cent outperformance vs NIFTY), we take a breather and move to ADD rating from Buy, with our revised December-24E TP of ₹1,200/share (from ₹975 earlier), implying December-25E P/EV of 0.9x.”