LIC shares drag on net profit, premium income shrinkage in Q2

Shares of Life Insurance Corporation (LIC) shares fell nearly 1 percent on November 13 after the company’s net profit fell on-year in fiscal second quarter. The decline in premium income and pressure on margins weigh on the insurer’s stock. However, analysts believe that LIC has levers in place to maintain its industry-leading position.

For the quarter ended September 2023, LIC‘s net profit fell 50 percent on-year to Rs 7,925 crore. The profit was reportedly hurt by a fall in premium income. Also, it transferred a lower amount of money to its shareholders’ fund. To boost its profitability after a change in its accounting policy, LIC transferred Rs 6,277 crore from its non-participating fund to a shareholders’ fund for the quarter ended September 30, the company said.

At 9:39 am, LIC shares were trading 1 percent lower at Rs 602 on the National Stock Exchange.

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

Also Read | LIC Q2 net profit at Rs 7925 cr, net premium income falls to Rs 1.07 lakh crore

LIC Chairperson Siddhartha Mohanty said that the insurer worked on realigning some of its products due to which VNB margins were affected. Additionally, competition and revision in rates affected the margin too, said Dinesh Pant, Executive Director.

LIC went public in May last year when its shares were sold at Rs 949 apiece in India’s largest IPO. The stock has not gone back to its IPO price since listing. The scrip touched an all-time low of Rs 530 in March this year before staging a slight recovery to trade at around Rs 608 level.

Analysts at Motilal Oswal are bullish on the stock as they believe that LIC has levers in place to ramp up growth in the highly profitable product segments. “However, changing gears for such a vast organization requires a superior and well-thought-out execution plan,” they said.

The brokerage expects, LIC to deliver a 3 percent CAGR in annualized premium equivalent (APE) over FY23-25, thus enabling a 9 percent VNB CAGR. APE is a measure of ascertaining the business sales in the life insurance industry.

However, analysts expect LIC’s operating return on embedded value (RoEV) to remain modest at 10.5 percent, given its lower margin profile than private peers and a large EV base.

The stock is trading at a reasonable valuation, considering the gradual recovery in margin and diversification in the business mix, they said. Motilal Oswal reiterated a ‘buy’ rating on the stock with a target price of Rs 850.

Follow our market blog to catch all the live action

LIC shares may also react to the shareholder lock-in period ending on November 13, freeing up a large chunk of shares for trading. According to a Nuvama Alternative & Quantitative Research note, 126.5 crore shares, or 20 percent of the company’s outstanding equity will be eligible for trading once the lock-in period ends.

Note that the ending of the shareholder lock-in period does not mean that those shares will be sold in the open market. They just become eligible to be traded.

Shares of LIC ended 0.4 percent lower on Muhurat trading day at Rs 608. So far this year, the stock has fallen 15 percent, underperforming benchmark Nifty 50 which has risen over 7 percent during this time.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.