Domestic brokerage firm BoB Capital Markets has recently initiated coverage on Life Insurance Corporation, India's largest life insurer, with a 'buy' rating and a target price of ₹800 apiece. The stock is currently trading at 0.5x FY25E EV, a 70% discount to peers, which the brokerage expects will narrow.
The brokerage has highlighted several key reasons for its bullish outlook on LIC, including the company's strong brand equity, clear market leadership, superior agency force, improving margin profile, and impressive claim settlement rate of more than 95%.
LIC has maintained a consistent NBP market share of over 60% and 80% in the group business despite facing tough competition from private sector players. However, the individual APE market share has declined from 46% in FY17 to 35% in FY23 YTD but remains in good shape, said the brokerage.
The noteworthy aspect is the impressive growth in LIC's balance sheet, which increased from ₹25 trillion in FY17 to ₹42 trillion at the end of FY22, marking an average increase of ₹3.3 trillion per annum.
Additionally, LIC is the largest asset manager in India, with AUM of ₹44 trillion as of 9MFY23, surpassing the mutual fund industry's AUM of ₹40 trillion, it added.
"The company's APE logged an 8% CAGR over FY17-FY22 to ₹532 billion, and we forecast a 13% CAGR over FY22-FY25 to ₹763 billion with NBP likely to rise at 18%."
“LIC has introduced six new non-par products in FY23 YTD, increasing its share from 7.1% to 9.5% in the first nine months of FY23. This shift is expected to raise VNB margins by 400 bps to 19% by FY25 from the current 15.1% in FY22,” said BoB Capital Markets.
The insurance behemoth employs over 50% of the industry’s agency force.
The company's productivity is well ahead of its listed private peers, with sales of 15.6 individual policies per agent at the end of FY22, the brokerage highlighted.
While there are concerns about the company's sensitivity to capital markets and balance sheet volatility from equity markdowns, LIC's seasoned management team provides comfort.
The withdrawal of tax exemption on big-ticket life insurance policies from FY24 is expected to have a minimal impact, as per the brokerage's analysis.
Meanwhile, the stock has been in bearish trend over the past six months, as it has corrected by over 11.14% during this period. So far in CY23, it has lost 19.66%.
From January 24th to March 31st, 2023, the stock faced a significant downward trend, dropping from ₹702 apiece to ₹534, resulting in a correction of almost 24%.
This is due to concerns over its exposure to the Adani Group, which has been embroiled in a series of allegations ranging from stock manipulation to high levels of debt, levelled by the short seller Hindenburg Research. At the current market price of 550, the stock is trading at a discount of almost 49% when compared to its issue price of ₹949.
14 analysts polled by MintGenie on average have a 'strong buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
