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Life Insurance Corporation (LIC) 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.

“LIC’s valuation at 0.7x FY24E EV appears reasonable considering gradual margin recovery and diversification in business mix though high sensitivity to equity market volatility remains an overhang," the note stated. The brokerage house has initiated coverage on LIC shares with a Buy rating and a target price of 830 apiece.

Motilal Oswal 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 lower margin profile than private peers.

Key downside risks, as per the brokerage, include a slow ramp up of individual Protection and Non-par savings, low share and productivity of banca channel and a sharp correction in equity markets.

“LIC enjoys a high market share in the Annuity segment (77% in FY21) due to its strong positioning in the group business. The share of Annuity in total new business mix stood at 21% in FY21. Annuity has enabled LIC to report high VNB margin of 118% in the Non-PAR segment and it has an immense growth potential. However, private players are also catching up fast as they have reported 23-131% CAGR over the past three years (FY19-22)," the note stated.

LIC share price has fallen sharply since its listing on the stock exchanges on May 17, 2022. LIC 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.

"LIC reported a sharp spike in its 1HFY22 Embedded Value (EV) as it split the fund between PAR and Non-PAR segments and benefitted from the transfer of MTM gains on its equity portfolio to the Non-PAR business. However, lower margin and modest premium growth will nevertheless keep operating RoEV under pressure, " Motilal Oswal added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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