Target: ₹760
CMP: ₹605.65
Life Insurance Corporation of India (LIC) reported broadly in-line numbers in H1-FY24, owing to weaker growth, strong boost in embedded value led by equity-market performance, and part provision on account of increased family pension liabilities.
We continue to perceive that structural challenges—such as slower growth-led market-share loss, sticky operating expenses, and higher sensitivity to equity market-led EV volatility—are likely to cloud LIC’s outlook. However, LIC is currently trading at about 0.50x Sep-25E P/EV, with the structural challenges and a possible share sale by the government already in the price.
We upgrade the stock to Buy, as we believe higher surplus generation and slower growth could lead to a step jump in dividend, as solvency is healthy. Our fair value Sep-24 target price is ₹760/share, and we value the shares at 0.63x Sep-25 EV (Cost of Equity: 13 per cent; Operating RoEV: 10 per cent; Single Stage Growth: 5 per cent).
Downside risks: Prolonged lack of clarity on dividend pay-out; share supply glut on account of OFS by the government of India; sharp correction in equity markets adversely impacting the embedded value.