Kotak Institutional Equities initiated coverage on Life Insurance Corporation of India with a "buy" call, citing that current valuations have "largely ignored its strengths".
The brokerage put the fair value of India's largest life insurer at Rs 1,000 apiece, implying a potential upside of nearly 40% from Tuesday's opening levels.
LIC had a 37% annualised premium equivalent market share in FY22, according to Kotak. "The high productivity (15.4 policies a year per agent versus 0.9–4.2 policies a year of its private peers) of over 13.3 lakh agents (54% of life insurance agents in India) remains the bedrock of LIC's market dominance and cost leadership."
LIC, despite better fundamentals, trades at a PE ratio of 0.8x, which according to the brokerage is "significantly lower than even private peers".
"Current multiples likely ignore LIC's strong agency franchise that is capable of modulating product profiles to high-margin products to deliver superior new business growth in the medium term."
LIC's margin expansion will also boost its new business growth, according to Kotak.
"Its margin expansion, driven by the shifting of the product mix by its unparalleled agency force, should boost new business growth, even as overall medium-term APE growth will likely be lower than private peers," the brokerage said. "The large unrealised equity gains (59% of FY22 EV) should also support LIC's enterprise value, but make it leveraged to capital market movements."
Kotak Institutional Equities is still "positive about LIC's ability to steer the product mix to the high-margin, non-par segment from the large share of the participating businesses."
The brokerage also listed a few risks to LIC's growth ahead. "Key risks to LIC's business stem from competition from private players that have a more diversified product mix and sourcing," it said. "A correction in the equity market can pose a significant risk to EV because of its large equity investment book, especially in the non-participating segment."
Shares of LIC Ltd. rose as much as 4% intraday to Rs 737.8 apiece, before closing 3.5% higher on Tuesday. That compares with 0.19% gains in the benchmark Nifty 50.
Of the 13 analysts tracking the company, 12 maintain a 'buy' and one suggests a 'hold', according to Bloomberg data. The 12-month consensus price target implies an upside of 14.8%.
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