LIC share price likely to see 51% upside, surge towards IPO price, amid deepening market cap discount: ICICI Securities
- LIC share price has fallen over 10% year-to-date (YTD), while the stock is down over 5% in the past one year. However, LIC shares are still trading more than 35% lower than its issue price.
Shares of Life Insurance Corporation of India (LIC), the state-run largest life insurer, are projected to rise more than 50% from the current levels as deepening market cap discount to embedded value (EV) posits attractive valuation, analysts said.
LIC share price has fallen over 10% year-to-date (YTD), while the stock is down over 5% in the past one year. However, LIC shares are still trading more than 35% lower than its issue price.
ICICI Securities maintained a ‘Buy’ rating on the stock based on 0.8x FY25E EV of ₹7.5 trillion. It has a target price of ₹917 per share, implying an upside of 51% from Wednesday’s closing price.
The target price is 5.7% higher than the LIC IPO listing price, but still lower than its issue price.
After a significant interest from investors for its ₹21,000-crore worth initial public offering (IPO), LIC shares were listed on May 17, 2022, at ₹867.20, a discount of 8.62% to the issue price of ₹949 per share on the BSE.
At the time of listing, LIC’s market capitalisation was around ₹5.48 lakh crore, making it India’s fifth most valuable company. The company’s value has eroded by more than ₹1.6 lakh crore and now stands at ₹3.85 lakh crore.
LIC reported a 50% YoY decline in its standalone profit to ₹7,925 crore in the September quarter of FY24 hurt by a fall in premium income. The insurance behemoth posted a net profit of ₹15,952 crore in the year-ago quarter.
LIC’s net premium income in Q2FY24 dropped 18.7% to ₹1.07 lakh crore from ₹1.32 lakh crore, YoY.
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The value of new business (VNB) for H1FY24 declined to ₹3,304 crore from ₹3,677 crore for the corresponding period of last fiscal year. The net VNB margin for the same period was flat at 14.6%.
ICICI Securities believes LIC is making the right efforts towards increasing VNB by pushing its product mix towards non-participating and expansion in non-agency distribution channels.
However, decline in group business, mixed results in persistency and competitive repricing in key segments to gain market share have led to 10% VNB decline YoY in H1FY24.
Going ahead, the brokerage expects some of these are expected to improve in H2FY24 (especially group volumes) while strong investment returns continue to aid embedded value (EV) growth.
“We have always believed that product mix driven possible increase in VNB margin (aim is to close in on private peer levels within next 3-4 years) is achievable and underappreciated by the market. In addition to that, the tailwinds of investment returns are also not captured in current deep discount valuation (trading close to ~0.5x FY25E EV),” ICICI Securities said.
It estimates -7% and +10% change in APE, VNB margin of 14% and 16% and unwinding of 8% each year for FY24 and FY25. It also expects FY24 and FY25 core RoEV to be ~9.3% versus 11% in FY23.
Recovery in group business and continued tailwinds in investment returns could lead to a positive surprise in H2FY24. Volume recovery will also help improvement in margins. Total RoEV is expected to be higher driven by positive economic variances at 18.5% and 9.1% for FY24 and FY25, ICICI Securities said.
At 1:20 pm, LIC shares were trading 0.51% higher at ₹610.00 apiece on the BSE.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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