LIC briefly crosses Rs 1,150 on stellar Q3 earnings: Should you buy, hold or sell the stock?

Shares of Life Insurance Corporation of India (LIC) surged past Rs 1,150 after the company reported strong earnings for the quarter ended December 2023, driven by an increase in net income from investments and growth in net premium income. The state-run insurer reported a 49 percent on-year jump in net profit at Rs 9,441 crore last week.

LIC's net premium income in Q3FY24 grew 4.67 percent YoY to Rs 1.17 lakh crore. On the PSU insurer's growth, LIC Chairman Siddhartha Mohanty said that this is just the beginning. "We have several products lined up in the coming days. There is a lot of scope for improvement in certain areas," he said in the post-results press conference.

Motilal Oswal believes that LIC has levers in place to maintain its industry-leading position and ramp up growth in the highly profitable product segments, mainly protection, non-participating product (non-par), and savings annuity. "However, changing gears for such a vast organisation requires a superior and well-thought-out execution plan," it said.

At 10:43am, LIC shares were trading 1.6 percent lower at Rs 1,062.65 on the National Stock Exchange (NSE). The stock has jumped 25 percent year-to-date (YTD) and 75 percent in the last one year, outperforming benchmark Nifty 50 by a margin.

According to analysts, the stock has the potential to rise up to Rs 1,300 in the next 12 months.

Stock Call: Should you buy, hold or sell LIC shares?

LIC's strategy stays pivoted on the rising share of non-par products in the product mix and on delivering absolute value of new business (VNB) growth, said Motilal Oswal.

Considering the gradual recovery in margin and diversification in the business mix, Motilal Oswal has raised its VNB estimates to factor in the increase in VNB margins.

It also raised its EV estimates owing to better-than-expected equity market returns and suggested a target of Rs 1,270 on the stock with a 'buy' rating.

Emkay Global has increased its VNB margin estimate by 1 percentage point and annual premium equivalent (APE) by 3 percent, which results in 9-11 percent growth in FY24-26 VNB.

"After the stellar run-up in the stock price post their upgrade, the brokerage has taken a breather and moved LIC stock to 'add' rating from 'buy' earlier with a revised December 2024 target price of Rs 1,200 per share (from Rs 975 earlier), implying December 2025 P/EV of 0.9 times.

Kotak Institutional Equities, meanwhile, has raised its fair value on the LIC stock to Rs 1,300 from Rs 1,040 earlier and revised up embedded value (EV) estimate by 5.7-6.8 percent, largely reflecting higher unrealised gains and the recent market rally. According to the brokerage, tailwinds to LIC's equity portfolio provide a further upside.

The LIC management is confident about maintaining or even increasing the share of non-par, further driving higher VNB growth, said Antique Stock Broking. "Factoring the 3Q beat, we increase our FY24–26E VNB by 13–14 percent and increase our DCF-based target price to Rs 1,080 (earlier Rs 780) implying 0.8x FY26E P/EV," the brokerage said.

The LIC management remains optimistic about the business growth going forward as the insurance company aims to grow its APE in double digits on a high base of last year. The company aims to increase its margin by increasing portion of non-par products in the overall product mix and maintaining a margin of more than 20 percent.

LIC will continue to launch products to be competitive in the market and benefit the shareholders. JPMorgan has upgraded LIC stock to 'overweight' from 'neutral' earlier with a target of Rs 1,340.

According to analysts at Religare Broking, LIC’s recently launched product remained competitive in the market while it continued to maintain its leadership position in both group and individual business.

"We expect its APE/VNB to grow at 9.4/16.5 percent CAGR over FY23-26E and revise our rating to 'Accumulate' from 'Hold' earlier along with target price revision to Rs 1,232 valuing the company at 1x of its FY26E embedded value," it said.

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