Financial Services Stock Falls 15%, Kotak Securities Sees 36% Return: Buy

Kotak Securities has initiated buy rating to leading Financial Services stock, Life Insurance Corporation of India with a target price of Rs 1000 apiece. The current market price of LIC is Rs 735 apiece and if you buy LIC shares now, you will get potential 36% return. The company has a market capitalisation of Rs 4,65,456.58 crore. Check key details below:

1. LIC Stock Performance & Return

The current market price of the stock is Rs 735 apiece with an intraday gain of 3.74%. The stock's 52-week high is Rs 920 apiece and 52-week low is Rs 588 apiece, respectively. The stock has surged 6% in last 1-week, 13% in last 1-month, and 18% in last 3-months. The stock has declined 15% since May 2022.

2. Gradual Margin Expansion; Account Bifurcation Boosts Ev And Earnings

We expect LIC to deliver a VNB CAGR of 18% in FY2023-25E owing to an APE CAGR of 13% 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% for FY2023-25E). Better economics for shareholders due to the 100% share in the non-par book and 10% (5% earlier) in the par book will likely support high growth in earnings (Rs258 bn in FY2025E versus Rs41 bn in FY2022).

3. Key Risks

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.

4. Valuation

We initiate coverage on LIC with a BUY rating and an FV of Rs1,000 (40% upside), reflecting 1.3X core EV December 2024E (2.1X to 3.2X for private peers) and a 50% haircut on unrealized equity gains. Its margin expansion, driven by the shifting of the product mix by its unparalleled agency force, should boost VNB growth, even as overall medium-term APE growth will likely to be lower than private peers. The large unrealized equity gains (59% of FY2022 EV) should also support LIC's EV but make it leveraged to capital market movements.

5. About LIC

It started its operations as a corporate firm in September 1956 after the Life Insurance of India Act was passed by India's Parliament in June 1956. LIC continues to be the dominant life insurer even in the liberalized scenario of Indian insurance and is moving fast on a new growth trajectory surpassing its own past records. LIC has issued over one crore policies during the current year. It has crossed the milestone of issuing 1,01,32,955 new policies by 15th Oct, 2005, posting a healthy growth rate of 16.67% over the corresponding period of the previous year.

 

Disclaimer

The stock has been picked from the brokerage report of Kotak Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.