Shares of life insurers were in focus on Tuesday, gaining up to 5 percent on the BSE, even as benchmark indices remained range-bound.
Individually, Life Insurance Corporation of India (LIC) rose 2.5 percent to Rs 727 in intra-day trade after Kotak Institutional Equities initiated coverage on the stock with a 'buy' rating. The brokerage firm considers LIC's fare value to be Rs. 1,000, which is 41 percent higher against Monday's closing price of Rs 710.
Meanwhile, HDFC Life Insurance Company (up 5 percent to Rs 597), ICICI Prudential Life Insurance Company (up 3.5 percent to Rs 467.85) and SBI Life Insurance Company (up 3 percent to Rs 1,272) gained between 3 percent and 5 percent on BSE. In comparison, the S&P BSE Sensex was up 0.16 percent at 61,267 at 11:46 am.
“LIC, India's insurance behemoth, despite ceding share to private players, has retained around 37 percent market share in individual annualised premium equivalent (APE) in FY22. Its enormous agency franchise remains the cornerstone of its success, driving 96 percent of individual new business premium (NBP) in FY2022,” analysts at KIE said in report dated January 3.
Moreover, the high productivity of its agency force, coupled with the benefits of scale, drove cost leadership. Listed private peers, on the other hand, largely depend on banks (44-65 percent of individual NBP) to drive their business. "We remain positive about LIC's ability to steer the product mix to the high-margin, non-par segment from the large share of the participating business (29 percent of APE in FY2022)," the brokerage firm added.
Analysts expect LIC to deliver a value of new business (VNB) CAGR of 18 percent in FY2023-25 owing to an APE CAGR of 13 percent and 180bps margin expansion.
“The bifurcation of funds led to a sharp increase in EV, a large part of which reflects unrealized gains in the equity book, thereby compressing RoEV (operating RoEV of 10 percent for FY2023-25E). Better economics for shareholders due to the 100 percent share in the non-par book and 10 percent (5 percent earlier) in the par book will likely support high growth in earnings (Rs 25,800 crore in FY2025E versus Rs 4,100 crore in FY2022)," KIE said.
Key risks to LIC's business stem from competition from private players that have a more diversified product mix and sourcing.
”A correction in the equity market can pose a significant risk to EV because of its large equity investment book, especially in the non-participating segment,” analysts said.
"With a host of reforms by the regulator and the government on the anvil, growth volatility in the sector and the individual company-specific, non-operating issues would mean that stocks will remain volatile in the near term. Notwithstanding near-term noises, the private sector's market leaders, powered by their formidable brand and distribution combination, are in a position to deliver robust growth in the medium term coupled with improving business margins. The recent underperformance of stocks in the life insurance sector and valuations turning more attractive provide a good opportunity to accumulate them," analysts at Emkay Global Financial Services had said in a December report.
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