LIC stock rallied 10% last week, analysts raises target price; Do you own?

Life Insurance Corporation of India (LIC), which is said to be known as most prominent Insurance and investment corporation, recently witnessed a 10% upstick in its share price.

The dramatic increase in the share price of LIC was seen after a long time,  experiencing a robust intraday surge of 9.7% on November 24, hitting a 10-week high of ₹677.65 apiece and also marking the largest intraday gain since listing in May 2022.

Throughout the trading session, the stock reached a peak of ₹682 per share. This significant increase came in the wake of LIC's aim to achieve double-digit growth in new business premiums for the fiscal year 2024.

Analyst projects 20% upside

Analysts have expressed optimism regarding the stock, leading to an upward adjustment in the target price and anticipates over 20% upside.

Brokerage firm Emkay increased its target price to Rs. 850/share (Rs. 760 earlier, Nov 12, 2023), noting that the business is in a comfortable position to considerably enhance its dividend distribution due to its strong solvency ratio of 190% and solid surplus creation amid relatively slower growth. 

While the brokerage house is conscious of the structural difficulties brought about by slower growth-driven market share loss as well as by excessive operating costs, they predict these will eventually come down.

While maintaining ‘Buy’ tag to the LIC stock, the brokerage firm said, “ Even after the recent upmove in LIC shares, we maintain our stance that valuation remains attractive and prices-in the aforementioned structural challenges as well as any technical overhangs around a likely stake-sale by the promoter. Delivering a sustainable operating RoEV of ~10.5% and single-stage growth rate of 5%, we value LIC shares at 0.7x Sep-25 P/EV, with our new Sep-24E target price of ₹850/share (Rs760 earlier).”

The surge witnessed last week seems to be primarily fueled by an exceptionally appealing valuation. This valuation already incorporates and reflects the structural challenges related to market-share erosion and an inflated cost structure.

"The challenges of the slower growth-led market-share loss to private players and the higher commission-/employee expenses-driven bloated cost structure are here to stay, but their impact is likely to be less pronounced than that’s seen in recent years," Avinash Singh of Emkay said.

Meanwhile, brokerage firm Geojit Research noted that with gradual rise in domestic household savings, the share of life insurance in incremental household financial savings is expected to increase steadily. 

“ The company continues to diversify its product mix with a focus on enhancing the non- par share of products. Life insurance density and penetration age continues to be lower in India vis-à-vis other developing economies,” the brokerage firm said in its report.

Reiterating Buy rating, the firm further said, “ LIC, as the market leader and a trusted name among the populace, is best positioned to benefit in the long-term. With an optimistic outlook, we reiterate our BUY rating on the stock with a revised target price of Rs. 823, based on 0.65x FY25E EV per share.”