LIC Shares Gain As Motilal Oswal Initiates Coverage With A ‘Buy’
Shares of Life Insurance Corp. gained for the third straight session after Motilal Oswal initiated coverage with a ‘buy' citing strong brand, vast distribution and reasonable valuation.
LIC has maintained its market leadership in the life insurance industry even as it “differs in its growth strategy versus private peers on distribution (agent dominated versus banca for private), product mix (traditional heavy versus ULIPs, non-par, protection for private), and high mix of single premium (82% of total new business premium versus 47% for private in FY22) with heavy reliance on group business (72% of total NBP versus 39% for private in FY22)”, the brokerage said in a July 5 report.
India's largest insurer, Motilal Oswal said, aims to ramp up the mix of non-participating policy business, driven by new product launches in the segment.
It enjoys a high market share in the annuity segment due to its strong positioning in the group business. Annuity, the report said, has enabled LIC to report high value of new business margin in the non-par segment and it has an “immense growth potential”.
According to the brokerage, LIC has a very “modest presence” in the protection business. “With most private players implementing tariff hikes over the recent months, the competitiveness of LIC in this product has improved and we estimate its protection volumes to increase over the coming years.”
Motilal Oswal estimates LIC to report 10% and 8% CAGR in new business premium and annualised premium equivalent over FY22-24. It expects the company's VNB margin to improve to 13.6% by FY24 from 9.9% in FY21.
LIC's valuation at 0.7x FY24 estimated EV, the report said, “appears reasonable” considering a gradual margin recovery and diversification in business mix though “high sensitivity to equity market volatility remains an overhang”.
The brokerage has a target price for LIC at Rs 830 apiece, implying a potential upside of 20%. Of the five analysts covering the stock, however, Motilal's target is the lowest after Goldman Sachs'.
Separately, JPMorgan, in its June 22 note, had said LIC represented a “compelling” value even after adjusting the embedded value lower for market volatility. It projected 6% growth in APE over FY22-24 and listed consistency in performance and disclosures as re-rating drivers.
Key downside risks for LIC, according to Motilal Oswal, include:
A slow ramp-up of individual protection and non-par savings.
Low share and productivity of banca channel.
A sharp correction in equity markets.
LIC's stock jumped as much as 3% intraday to Rs 711.65 apiece, a three-week high. The stock closed with 1.5% gains against 0.15% losses for the Nifty 50.
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