LIC shares snap 3-session losing streak; here’s why

Shares of Life Insurance Corporation (LIC) of India snapped its three-session losing streak on Wednesday, tracking positive cues from the broader market. LIC shares rose as much as 0.85% today as investors digested its September quarter earnings report released on November 10. Post Q2 results, ICICI Securities maintained ‘BUY’ call on LIC stock with a target price of ₹917, an upside potential of 51% from the current market price.

Early today, LIC of India shares opened marginally higher at ₹606.55, against the previous closing price of ₹605.65 on the BSE. During the trade so far, LIC shares gained 0.85% to touch an intraday high of ₹610.80. The stock hit a 52-week high of ₹754.40 on December 20, 2022, and a 52-week low of ₹530.20 on March 29, 2023.

At the time of reporting, LIC shares were trading a tad higher at ₹607.8, paring early gains. The market capitalisation of the India's largest insurance company stood at ₹3.84 lakh crore.

LIC shares were under stress for the last few sessions after the state-owned insurer’s net profit halved year-on-year (YoY) in September quarter, dented by fall in premium income and pressure on margins. However, analysts at ICICI Securities believe that LIC is making the right efforts towards increasing VNB (value of new business) by pushing its product mix towards non-participating and expansion in non-agency distribution channels.

For the second quarter ended September 2023, LIC reported a 50% decline in net profit at ₹7,925 crore as compared to ₹15,952.5 crore in the year ago period. The net premium income fell 19% YoY to ₹1.07 lakh crore from ₹1.32 lakh crore in the same period last fiscal.

The gross non-performing assets (GNPAs) declined to 2.43% as against 5.60% in the previous year, while the net NPA remained nil during the quarter under review.

For the half year ended September 30, 2023, LIC’s profit after Tax (PAT) was ₹17,469 crore, which included an amount of ₹13,768 crore (net of tax), pertaining to the accretions on the available solvency margin, transferred from non - par fund to shareholders account. The total premium income for six month period was ₹2.05 lakh crore as compared to ₹2.3 lakh crore in the corresponding period last year.

LIC in its earnings report said that the profits are not comparable since it included amount pertaining to the accretions on the available solvency margin for the last quarter of FY22, which was transferred from non-par fund to shareholders account on September 30, 2022.

The value of new business (VNB) the expected profit from new policies, for the six-month period ended September 30, 2023, was ₹3,304 crore as compared to ₹3,677 crore in H1 FY23. The net VNB margin for the same period remained flat at 14.6%.

ICICI Securities in its report says, “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).”

“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,” it adds.

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