Life Insurance Corporation (LIC) shares have been under pressure this year but they could be one of the best bets at this juncture as brokerage firms appear positive about the growth prospects of LIC after the impressive March quarter show of the largest life insurer in India. The company on May 24 reported a 447.47 per cent or 5.5 folds year-on-year rise in consolidated Q4 FY23 PAT at ₹13,190.79 crore. In the previous fiscal’s Q4, the PAT stood at ₹2,409.39 crore.
Consolidated net premium income, on the other hand, fell 8.27 per cent to ₹1,32,223.21 crore in Q4FY23 from ₹1,44,158.84 crore in Q4 of the previous fiscal.
Besides, LIC’s board of directors recommended a dividend of ₹3 per equity share for FY23. LIC shares rose nearly 2 per cent the following day (May 25).
O May 26, the stock rose about a per cent in morning trade. The year so far has been bad for the stock as it is down about 12 per cent year-to-date.
The stock hit its 52-week high of ₹841 on May 30, 2022, and a 52-week low of ₹530.20 on March 29, 2023.
Read more: LIC reports impressive 447.5% growth in Q4 consolidated PAT to ₹13,191 crore; declared dividend
Brokerage firms retained their views and see healthy upside potential in the stock as the company’s March quarter numbers were strong.
Brokerage firm Motilal Oswal Financial Services maintained a buy call on Life Insurance Corporation stock with a target price of ₹830, implying a 38 per cent upside potential.
«LIC has the levers in place to maintain the 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,» Motilal Oswal said.
«LIC is trading at 0.6 times FY24E EV (embedded value), which appears reasonable considering the gradual recovery in margin and diversification in the business mix,» said the brokerage firm.
Motilal expects LIC’s margins to rise, aided by an improving mix of non-PAR (non-participatory) and higher profit retention for shareholders.
«The retention will increase in the PAR (participatory) business, besides retaining the complete profits in the non-PAR business,» said Motilal Oswal.
The brokerage firm raised its FY24 and FY25 VNB (value of the new business) estimates by 4 per cent and 6 per cent respectively. Motilal expects LIC to deliver a 15 per cent CAGR in APE (annualized premium equivalent) over FY23-25, enabling a 27 per cent VNB CAGR.
However, the brokerage firm expects LIC’s operating RoEV (return on embedded value) to remain modest at 10.9 per cent, given its lower margin profile than private peers and a large EV base.
Brokerage firm JM Financial also maintained a buy call on the stock with a target price of ₹940, which is a nearly 56 per cent upside from the stock’s May 25 close of ₹603.60 on BSE.
«The current valuation of LIC of 0.5 times FY25E EV is undemanding. We expect it to rerate on the back of its key strengths: large customer base, huge agency network, strong brand equity and, importantly, the sovereign guarantee attached to LIC policies. All these factors, along with cyclical tailwinds for the insurance sector, should help in LIC’s stock rerating,» said JM Financial.
JM Financial expects LIC’s EV to improve, aided by continued growth in APE with minor improvement in VNBs as well.
Read all market-related news here
Disclaimer: The views and recommendations given in this article are those of the brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
Know your inner investor
Do you have the nerves of steel or do you get insomniac over your investments? Let’s define your investment approach.
Take the test
Download The Mint News App to get Daily Market Updates.
More
Less
Updated: 26 May 2023, 11:41 AM IST
