The Life Insurance Corporation of India (LIC) was established on September 1, 1956, has maintained its market leadership position in the life insurance industry underpinned by its strong brand, vast distribution, and superior customer-connect despite the advent of a large number of private players.
The company has a broad and diversified product portfolio covering various segments across individual products and group products. It also provides fund management services for group pension products under employer-employee pension schemes.
The brokerage firm Motilal Oswal Financial Securities has initiated coverage on the Life Insurance Corporation stock with a ‘Buy’ rating.
The brokerage has a price target of ₹830 on the stock based on 0.8 times FY24 EV, as it expects gradual margin recovery and diversification in the business mix though high sensitivity to equity market volatility remains an overhang.
Motilal's target projecting 20 percent upside over Monday's closing price of ₹692.50 on BSE. Meanwhile, the share of the company on Tuesday, closed up 1.49 percent at ₹702.80 on BSE.
However, the share price of LIC has fallen sharply since its listing on the stock exchanges on May 17, 2022. The shares were allotted to the investors at ₹949 apiece and got listed at the stock exchanges at discount. The stock is about 34% down from its IPO issue price of ₹949, which means even if the level is achieved, primary investors will be sitting on a loss.
The brokerage estimates LIC to deliver around 10% CAGR in NBP during FY22-24E while the Value of New Business (VNB) margin is likely to improve to 13.6% on improving product mix and higher profit retention. However, it estimates LIC’s operating RoEV to remain modest at about 9.7% on a lower margin profile than private peers.
Key downside risks include a slow ramp up of individual Protection and Non-par savings, low share and productivity of the banca channel and a sharp correction in equity markets, according to the brokerage.
“Unlike private peers, LIC relies on its dominant agency channel to distribute insurance products; yet it has maintained a strong control on the cost ratios”, said Motilal Oswal.
So far, LIC has all the levers in place to maintain industry leading position and ramp up growth in the highly profitable product segments. However, changing gears for such a vast organisation requires superior and well-thought execution that also has to endure frequent rotation at the top management level.
Disclaimer: The views and recommendations made above are those of individual analysts or broking firms and not of MintGenie.