Last Update: January 03, 2023, 2:49 PM IST
State-run insurance giant Life Insurance Corporation India (LIC) got a boost on January 3 when Kotak Institutional Equities initiated coverage on the stock with a target price of Rs 1,000. KIE has fixed the fair price of the stock at Rs 1,000, indicating an upside of about 38 per cent from the current market prices. KIE’s target price of Rs 1,000 is higher than LIC’s issue price of Rs 949, which the stock has not managed to hit since its launch.
The stock rose 2.5 per cent to hit the day’s high of Rs 727.15 on Tuesday following the report.
According to the brokerage, its margin expansion, driven by the shifting of product mix by its unique agency strength, should drive VNB growth, even as overall medium-term APE growth is likely to be lower than private peers.
Large unrealized equity gains (59 per cent of FY2022 EV) should also support LIC’s embedded value (EV), but it should take advantage of capital market movements,” the note said.
LIC has retained around 37 per cent market share in individual APEs in FY22 despite divesting stake to private players. Its vast agency franchise remains the cornerstone of its success, driving 96% of individual NBP in FY2022, Kotak underlined.
However, the major risk to LIC’s business stems from competition from private players, who have a more diversified product mix and sourcing. According to analysts, the correction in the equity market could pose a significant risk to EV given its large equity investment book, especially in the non-participating segment.
“Furthermore, the high productivity of its agency force, coupled with the benefits of scale, exerts cost leadership, while listed private peers largely depend on banks (44-65% of individual NBPs) to run their business We remain positive about LIC’s ability to drive the product mix from a larger portion of the participating business into a higher-margin, non-peer segment.”
The brokerage expects LIC to deliver a VNB CAGR of 18 per cent over FY 2023-25E, led by an APE CAGR of 13 per cent and 180 bps margin expansion. Better economics for shareholders due to 100 per cent shares in non-par book and 10 per cent in par book (5 per cent earlier) will support higher growth in earnings (258 bn in FY2025E vs 41 bn in FY2022.
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