LIC Share Price: life insurance corporation Shares rose in early trade after brokerage firm Motilal Oswal gave a ‘buy’ rating to the insurance giant. It said it finds the FY24E EV’s valuation of 0.7 times reasonable. “The valuation of LIC at 0.7x EV of FY24 appears reasonable given the gradual margin recovery and diversification in the business mix, although higher sensitivity to equity market volatility remains an overhang,” the note said. ” The brokerage house has started coverage LIC Shares With a ‘Buy’ rating and a target price of Rs.830.
Motilal Oswal estimates that LIC will give around 10 per cent CAGR in NBP during FY22-24E while the value of new Business On improving product mix and higher profit retention (VNB) margins are likely to improve to 13.6 per cent. However, it estimates that LIC’s operating ROEV will remain modest at around 9.7 per cent on a lower margin profile than its private peers.
Motilal’s target indicates a rise of 20 per cent against Monday’s closing price of Rs 692.50 on BSE.
According to the brokerage, the major downside risks include slow movement of individual security and non-par savings, lower share and productivity of Banca channel and sharp correction in equity markets.
“LIC enjoys a high market share in the annuity segment (77 per cent in FY2011) due to its strong position in the group business. Annuities accounted for 21 per cent of the total new business mix in FY2011. Annuities have enabled LIC to report higher VNB margins of 118 per cent in the non-PAR segment and have immense growth potential. However, private players are also catching up fast as they have registered a CAGR of 23-131 per cent in the last three years (FY19-22),” the note said.
Motilal Oswal felt that while the focus on profitable growth would force LIC to re-evaluate its growth trajectory, operating such a large franchise would be a daunting task and would require better execution over the next few years.
It expects LIC to report a one per cent CAGR in New Business Premium (NBP) and 8 per cent in Annual Premium Equivalent (APE) in FY22-24E. Motilal Oswal said that VNB margins are witnessing improvement to 13.6 per cent during this period, but even at that level, LIC’s VNB margins will be almost half as compared to other private players.
Presently, LIC’s product mix is dominated by the traditional savings business, with low-margin PAR products accounting for 19 per cent of the total NBP and 65 per cent APE in FY2011. While most private companies have focused on increasing the mix of high-margin non-PAR and security products, LIC’s reliance on PAR products remains high.
“However, the company aims to clearly increase the non-par business mix, continuously launching new products in the non-par segment,” Motilal said.
Motilal said LIC’s operating return on embedded value (ROEV) may remain modest at 9.7 per cent on a lower margin profile than its private counterparts. Major downside risks for LIC include slow ramp-up of personal security and non-par savings, low share and productivity of Banka Channel, and sharp recovery in equity market. ,
The share price of LIC has declined sharply since its listing on the stock exchanges on May 17, 2022. The shares of LIC were allotted to the investors at Rs 949 and were listed at a discount on the stock exchanges. The stock is down about 34 per cent from itself IPO Issue price Rs 949.
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