Target: ₹830
CMP: ₹702.8
Life Insurance Corporation (LIC) has maintained its market leadership position in the life insurance industry underpinned by its strong brand, vast distribution, and superior customer-connect despite the advent of a large number of private players.
During FY22, LIC accounted for 63 per cent/46 per cent of the total New Business Premium (NBP)/Annualised Premium Equivalent (APE) with a distinct focus on PAR business that formed 70 per cent/92 per cent of individual NBP/APE, respectively, in 9M-FY22.
Unlike private peers, LIC relies on its dominant agency channel (1.3 million agents, 54 per cent of industry as of 31st Mar’22) to distribute insurance products; yet it has maintained a strong control on the cost ratios.
We estimate LIC to deliver about 10 per cent CAGR in NBP during FY22-24 while the Value of New Business (VNB) margin is likely to improve to 13.6 per cent on improving product mix and higher profit retention. However, we estimate LIC’s operating RoEV to remain modest at about 9.7 per cent on lower margin profile than private peers.
LIC’s valuation at 0.7x FY24E EV appears reasonable considering gradual margin recovery and diversification in business mix though high sensitivity to equity market volatility remains an overhang. We initiate coverage on the stock with a Buy rating and a TP of ₹830 based on 0.8x FY24 EV.