LIC Q1 Review: Macquarie Notes Positive Surprise On Margin — Check Target Price

Life Insurance Corporation of India posted its first-quarter results on Thursday, and Macquarie notes a positive surprise in the margins as they maintain their 'Outperform' rating. Macquarie sets a target price of Rs 1,215 for the counter.

Life Insurance Corp.'s consolidated net profit rose 4.11% in the first quarter of the current financial year. The country's largest insurer posted a profit of Rs 10,985 crore in the quarter ended June.

LIC reported a first-quarter value of new business, or VNB, of Rs 19.4 billion, up 21% from last year, which was a 9% beat to the analyst estimates, driven primarily by a higher-than-expected VNB margin of 15.4%.

The brokerage also noted that the decline in cost ratios has driven improvement in the value of new business margins. VNB margins improved 150 basis points year-on-year to 15.4%. This is attributed mostly to a decline in cost ratios, which is the total expense ratio down 140 bps compared to 10.5% last year. They also cite improving product-level margins. This was partially offset by strong growth in ULIPs, which was up 115% year-on-year.

Management continues to target improvement in margins given the potential for further improvement in non-par mix.

"We continue to see a value proposition in the stock. Further, a negligible banca channel mix also shields the company from any material impact from upcoming bancassurance regulations," the brokerage noted.

The insurer saw an improvement in its 13th-month persistency ratio, which rose to 75.63% compared to 68.62% in the previous quarter. However, the 61st-month persistency ratio saw an uptick to 63.85% from 58.54% quarter on quarter, reflecting a confidence in long-term policy retention.

The value of the new business margin contracted to 15.4% from 18.75% in the previous quarter, suggesting a shift in product mix or pricing strategy that impacted profitability.

On the business growth front, group annualised premium equivalent grew robustly by 16.14% year-on-year to Rs 5,590 crore compared to Rs 4,813 crore, while individual APE witnessed a moderate growth of 4.65% to Rs 7,061 crore.