Shares of Life Insurance Corporation (LIC) faced a 15 percent drop this year, underperforming the benchmark Nifty 50. The decline came after LIC reported a decrease in net profit for the second quarter of the fiscal year. The company faced challenges of falling premium income and pressure on margins, which impacted its stock performance. Despite this, analysts believe LIC will be able to maintain its industry-leading position.
In the quarter ending September 2023, LIC’s net profit fell by 50 percent compared to the previous year, totaling Rs 7,925 crore. The drop in profit was caused by a fall in premium income, as well as a lower amount of money transferred to its shareholders’ fund. LIC made efforts to improve profitability by transferring Rs 6,277 crore from its non-participating fund to the shareholders’ fund.
LIC shares were trading at Rs 602, down 1 percent, on the National Stock Exchange. The value of new business (VNB), which represents the expected profit from new policies, was Rs 3,304 crore for the six-month period ending in September 2023. This figure decreased from Rs 3,677 crore in the same period last year. The net VNB margin for this period remained stable at 14.6 percent.
LIC highlighted the impact of realigning certain products on the VNB margins. Competition and revisions in rates also affected the margins. Despite these challenges, analysts at Motilal Oswal believe that LIC has the potential to ramp up growth in highly profitable product segments, though a well-executed plan is necessary for such a large organization.
While LIC’s stock performance has not reached its initial IPO price, analysts expect the company to deliver a 3 percent compound annual growth rate (CAGR) in annualized premium equivalent (APE) over FY23-25, leading to a 9 percent CAGR in VNB. However, LIC’s operating return on embedded value (RoEV) is expected to remain modest at 10.5 percent due to its lower margin profile compared to private peers and a large embedded value base.
Analysts view LIC’s stock as having a reasonable valuation, taking into account the gradual recovery in margin and diversification in the business mix. Despite the challenges, Motilal Oswal maintains a ‘buy’ rating on the stock with a target price of Rs 850.
Q: Why did LIC shares fall?
A: LIC shares fell due to a decrease in net profit for the second quarter, caused by falling premium income and pressure on margins.
Q: Will LIC be able to maintain its industry-leading position?
A: Analysts believe LIC has levers in place to maintain its industry-leading position.
Q: What affected LIC’s profit?
A: LIC’s profit was affected by a fall in premium income and a lower amount of money transferred to its shareholders’ fund.
Q: What are analysts’ expectations for LIC’s future growth?
A: Analysts expect LIC to deliver a 3 percent compound annual growth rate (CAGR) in annualized premium equivalent (APE) and a 9 percent CAGR in value of new business (VNB) over the next few years.
Q: Does LIC’s stock have a reasonable valuation?
A: According to analysts at Motilal Oswal, LIC’s stock is trading at a reasonable valuation considering the recovery in margin and diversification in the business mix.