Shares of India's largest life insurer Life Insurance Corporation of India (LIC) have not proven to be profitable yet for its investors. The stock has fallen nearly 25 percent from its listing in May. The stock which listed at around ₹865, is currently trading at around ₹655.
From its IPO price of ₹949, the stock has lost over 30 percent till now. An investment of ₹15,000 in the LIC IPO would have been reduced to around ₹10,000 now.
Since its listing, brokerages have been skeptical on the stock, however, now post its June quarter results, some of them have turned bullish on India's largest life insurer. In a recent note, domestic brokerage house Axis Capital said that it has initiated coverage on the stock with a buy call and a target price of ₹900, indicating a potential upside of over 37 percent in the stock. This comes on the back of its 25 percent correction since listing. Also, the life insurer is shifting to more profitable segments and trading at a significant discount to its listed private peers, which are huge positives, stated the brokerage.
LIC dominates the life insurance industry in India led by a trusted brand, comprehensive product portfolio and large feet on the street, said Axis.
LIC was the largest initial public offering in the history of the Indian primary markets as the government of India raised about ₹21,000 crore by offering 221,374,920 equity shares or a 3.5 percent stake in the company.
"LIC, the market leader in India’s life insurance, space is shifting focus to profitable segments (NPAR/protection products), a higher share of the individual business, and omnichannel distribution (Banca/digital partnerships)," informed the brokerage. It expects NPAR (including annuity) share to grow from 7 percent to 15 percent in the next few years and the value of new business (VNB) margin to improve to 18 percent by FY25. However, a lower contribution of VNB to embedded value (EV) and single-digit RoEV of 6.5 percent in the near term will keep valuations under check, said Axis.
A network of 1.33 mn agents (54 percent of the industry’s agency force) and 47 percent of these in rural areas is LIC’s key strength, highlighted Axis. Incremental focus is to diversify into alternate channels, it said adding that Banca channel (large partners – IDBI Bank, Axis Bank) share is expected to double (current 3 percent) over the next few years.
Axis expects FY25E value to new business margin to expand to 18 percent, however, RoEV will be weak at 6.5 percent due to a large EV base.
The brokerage further informed that 64.1 percent/63.6 percent market share in total premium as of FY21/H1FY22, large back book driving renewals (62.5 percent/62.9 percent market share in renewal premium in FY21/H1FY22), and strong presence in the group segment have enabled LIC to maintain its leadership in the life insurance space, it added.
While total industry premium has posted a CAGR of 11.4 percent over FY15-21, LIC’s growth has been slower at 9.1 percent. This is on account of private players gaining market share at the expense of LIC, informed Axis.
LIC remains the market leader with a 72 percent share in a total number of policies, the brokerage further informed. LIC issued 21.25 million policies out of a total of 28.57 mn policies issued in FY22. Within Group, its share is higher (LIC issued 85 percent of group policies in the industry as of FY23YTD), it said. Despite losing market share in the individual segment, LIC maintains 72 percent market share by an individual number of policies – particularly in the lower-ticket size category, Axis noted.
The brokerage believes LIC’s strategy of consistently improving the quality (i.e. productivity and longevity) of agents in its force is a better proposition vs. its private peers’ strategy of adding quantity (number of agents). By using loyalty programs such as club memberships and facilitating training programs through ANANDA and PRAGATI apps, it believes the company is better positioned vs. peers to leverage its agency force.
Apart from this, LIC’s use of technology to provide digital support to agents through online recruitment, and training will drive operating efficiencies, along with hiring more millennial agents (by running social and digital media campaigns) will help it cater to the needs of the young, tech-savvy customer, highlighted Axis.
Among its other listed peers, Axis has buy calls on HDFC Life, and SBI Life while an add call on ICICI Prudential.
LIC reported nearly 232 times year-on-year (YoY) growth in standalone net profit at ₹682.88 crore for the quarter ended June 30. It had posted a standalone profit of ₹2.94 crore in the corresponding quarter last year. However, its performance was disappointing on a quarter-on-quarter (QoQ) basis. Its net profit declined 71.2 percent on quarter to ₹2,371.6 crore, while standalone total premium contracted 31.6 percent to ₹98,351.8 crore.
Meanwhile, on a YoY basis, the net premium income of LIC increased by 20.35 percent to ₹98,351.76 crore.
The company’s market share in first-year premium income stood at 65.42 percent at the end of the June quarter, down from 67.52 percent in the year-ago quarter.
During the quarter under review, the asset under management (AUM) increased to ₹41.02 lakh crore as compared to ₹38.13 Lakh crore in Q1 FY22, up 7.57 percent on yearly basis.
Post the earnings, LIC’s Chairman MR Kumar said that the fall in the new business margin in the June quarter is a "temporary blip" and the value of new business margin will improve once the life insurer increases the share of high margin protection plans.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
