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Target: ₹975
CMP: ₹824.10
Life Insurance Corporation of India’s share price has run up materially (up 36 per cent vs Nifty50: up 12 per cent) following the company’s H1-FY24 results. The outperformance has been primarily driven by: attractive valuation after a long underperformance spell since listing; strong EV growth led by buoyant equity markets; the worst, in terms of structural issues of lower growth and higher cost, now likely behind, with expectations of growth revival from FY25 on a favorable base and widening of product offerings; and possibility of step up in dividend.
Despite this recent run-up, the relatively attractive valuation (FY25E P/EV: 0.7x) and hope of revival in growth (FY25 APE growth: 10 per cent) remain supportive of the stock performance; also, the large amount of unrealised equity gains (not included in the Available Solvency Margin) gives the company reasonable flexibility to materially increase dividends.
We reiterate Buy on the stock, with revised Dec-24 target price of ₹975/share (vs. Sep-24 TP of ₹850 earlier), implying Dec-25E P/EV of 0.8x.
Our nudge to the TP is driven by: roll over to Dec-24; and expectations of an increase in sustainable operating RoEV to 11 per cent from 10.5 per cent. As Company’s operating RoEV remains lower than the cost of equity, we continue to value LIC at a discount to EV.
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