State-run insurance behemoth Life Insurance Corporation of India (LIC) got a boost on January 3 after Kotak Institutional Equities initiated coverage on the stock with a target price of Rs 1,000 apiece. Signalling an upside of around 38 per cent from current market prices, KIE sees the stock’s fair value at Rs 1,000. 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 debut.
Following the report, the stock rallied 2.5 per cent on Tuesday to hit the day’s high at Rs 727.15.
Its margin expansion, driven by the shifting of the product mix by its unparalleled agency force, should boost VNB growth, even as overall medium-term APE growth will likely to be lower than private peers, as per the brokerage.
“The large unrealized equity gains (59 per cent of FY2022 EV) should also support LIC’s embedded value (EV) but make it leveraged to capital market movements,” the note stated.
LIC, despite ceding share to private players, has retained around 37 per cent market share in individual APE in FY2022. Its enormous agency franchise remains the cornerstone of its success, driving 96% of individual NBP in FY2022, Kotak highlighted.
Though, key risks to LIC’s business stem from competition from private players that have a more diversified product mix and sourcing. A correction in the equity market can pose a significant risk to EV because of its large equity investment book, especially in the non-participating segment, as per analysts.
“Moreover, the high productivity of its agency force, coupled with the benefits of scale, drives cost leadership, while listed private peers largely depend on banks (44-65% of individual NBP) to drive their business. We remain positive about LIC’s ability to steer the product mix to the high-margin, non-par segment from the large share of the participating business,” it said.
The brokerage expects LIC to deliver a VNB CAGR of 18 per cent in FY2023-25E owing to an APE CAGR of 13 per cent and 180bps margin expansion. Better economics for shareholders due to the 100 per cent share in the non-par book and 10 per cent (5 per cent earlier) in the par book will likely support high growth in earnings (Rs 258 bn in FY2025E versus Rs41 bn in FY2022.
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