The share price of Life Insurance Corporation got a boost on January 3 after Kotak Institutional Equities initiated coverage on the stock with a target price of Rs 1,000 apiece. This indicates a 38 percent upside on the stock.
At 1pm, the stock was quoting at Rs 717.50 on the National Stock Exchange, higher by 1.13 percent. The scrip has fallen 13 percent since its listing in May 2022. KIE's target price of Rs 1,000 is higher than LIC's issue price of Rs 949, which the stock has not managed to hit since its debut.
LIC has over 1.3 million agents, accounting for 54 percent of life insurance agents in India. "Their high productivity of 15.4 policies per year versus 0.9-4.2 policies per year per agent of LIC's private peers remains the bedrock of LIC’s market dominance and cost leadership," said KIE analysts.
Its dominance is unparalleled in the Indian life insurance sector, with
37 percent APE (annual premium equivalent) market share in FY22, the note added.
"Listed private peers largely depend on banks to drive their business. We remain positive about LIC’s ability to steer the product mix to the high-margin, non-par segment from the large share of the participating business," KIE said.
Life insurance companies primarily sell two types of products—participating policies where profits are shared with customers, while non-participating or non-par have fixed returns. LIC parks the premium it collects from the non-par policies in a non-participating fund.
Analysts at Kotak expect LIC to deliver a VNB (value of new business) CAGR of 18 percent in FY23-25 owing to an APE CAGR of 13 percent and 180 basis point margin expansion.
"We believe LIC’s valuations largely ignore its strengths. We initiate coverage on LIC with a BUY rating and an fair value of Rs 1,000. The margin expansion, driven by the shifting of product mix, should boost VNB growth, even as overall medium-term APE growth will likely be lower than private peers," Kotak said.
LIC’s assets under management (AUM) increased to Rs 42.93 lakh crore as on September 30, 2022, from Rs 39.50 lakh crore in the year-ago quarter.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.