LIC shares dive 27% from issue price; Motilal Oswal initiates coverage with buy, sees 20% potential rally

LIC share price rose around 2 per cent on Tuesday, a day after the stock was categorised as largecap, according to the Association of Mutual Funds in India’s (AMFI) latest stock categorisation

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Domestic brokerage house Motilal Oswal has initiated coverage with a buy rating and a target price of Rs 830 apiece, implying 20 per cent potential rally going forward

LIC share price rose around 2 per cent on Tuesday, a day after the stock was categorised as largecap, according to the Association of Mutual Funds in India’s (AMFI) latest stock categorisation. The stock was quoting at Rs 707, up 2 per cent on NSE. LIC share price has tumbled 27% from issue price of Rs 949 apiece. Despite the steep correction in the stock since its market debut earlier this year, analysts remain bullish on the stock. Domestic brokerage house Motilal Oswal has initiated coverage with a buy rating and a target price of Rs 830 apiece, implying 20 per cent potential rally going forward. “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,” it said.

LIC to deliver around 10% CAGR in NBP during FY22-24

Analysts at Motilal Oswal estimate LIC to deliver around 10% CAGR in NBP during FY22-24 while the Value of New Business (VNB) margin is likely to improve to 13.6% on improving product mix and higher profit retention. However, they estimate LIC’s operating RoEV to remain modest at about 9.7% on lower margin profile than private peers. “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),” they said.

Lower margin, modest premium growth to nevertheless keep operating RoEV under pressure

“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 said.

All levers in place to maintain industry leading position

The brokerage believes that LIC has all the levers in place to maintain industry leading position and ramp up growth in the highly profitable product segments. However, changing gears for such a vast organization requires superior and well-thought execution that also has to endure frequent rotation at the top management level. However, key downside risks 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.

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