For H1-FY23, LIC reported a mixed performance, where 36.7 per cent y-o-y APE growth (Retail APE: 20.7 per cent YoY and Group APE: 67.5 per cent YoY) and VNB margin of 14.6 per cent were better than our estimates, but the EV of ₹5.44 lakh crore was 3 per cent below our estimates and largely flat (+0.85 per cent y-o-y and +0.5 per cent in H1FY23).
PAT at ₹16,600 crore was way above our estimates, as the company chose to transfer surplus ₹143bn from its non-par fund to shareholders’ fund. On net basis, LIC’s H1FY23 numbers do not change our opinion on the fundamental challenges of slower growth and sticky cost leading to gradual market share loss in the retail segment and subpar profitability reflecting in poor Embedded Value (shareholder value) compounding.
To reflect H1 developments, we adjust our estimates, leading to 6-8 per cent cut in FY23-25 EV estimates. Currently, LIC is trading on FY23E P/EV of 0.7x. LIC’s valuation is undemanding, but we do not see catalysts to drive a material re-rating of LIC’s shares. We reiterate our Hold rating on the stock with our revised TP of ₹750 from ₹800 (unchanged Sep-23E P/EV of 0.8x)