Motilal Oswal's research report on Life Insurance Corporation
LICI reported a strong financial performance in 2QFY23, with a 48% YoY growth in APE to INR252b in 1HFY23. VNB grew 132% YoY to INR36.8b as VNB margin improved by 530bp to 14.6% in 1HFY23. VNB margin rose 160bp QoQ to 15.2% in 2QFY23. Shareholder PAT rose 10x YoY to INR159b in 2QFY23 due to the INR143b transfer from non-PAR to the shareholders’ account as it relates to accretion on available solvency margin. The Individual/Group business constituted 53%/47% of APE in 1HFY23. Within the Individual business, the share of PAR products remained stable ~92%. In terms of NBP, the share of PAR products was lower at 68%. Annuity/Pension and ULIPs constituted the bulk of the residual at 24%/6%. We expect the momentum to sustain led by incremental focus and the introduction of new products. The 160bp QoQ increase in VNB margin was due to higher margin in the Group segment and Individual PAR business. However, the same was partially offset by a 470bp QoQ decline in margin in the individual Non-PAR segment, led by a revision in Annuity rates to make it more competitive v/s its peers. Within the Group segment, a higher share of Annuity drove the 230bp QoQ expansion in margin to 17.6% in 1HFY23.
Outlook
However, we expect operating RoEV to remain modest at 11.8%, given its lower margin profile than private peers. Valuation at 0.6x FY24E EV appears reasonable, considering the gradual recovery in margin and diversification in the business mix. We maintain our Buy rating with a revised TP of INR870 (0.8x FY24E EV).
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