LIC hits 19-mth high, up 7% on getting 1-time exemption to achieve 25% MPS

Growth ramp up of the country's largest life insurer hinges on improved execution

Shares of Life Insurance Corporation of India (LIC) hit a 19-month high of Rs 820.05 as they rallied 7 per cent on the BSE during Friday’s intraday trade.

The stock was supported by heavy volumes, after the finance ministry gave the company a one-time exemption from the 25 per cent public shareholding rule. The stock closed with gains of 3.73 per cent at Rs 793 per share. 

A combined 11.6 million equity shares of the company have changed hands during the day’s trading on the NSE and BSE, exchange data shows. The LIC stock was quoting at its highest level since May 31, 2022. With Friday’s gain, the stock has recovered 50 per cent from its 52-week low of Rs 530.20, touched on March 29. It had hit a record high of Rs 918.95 on listing day.

In an exchange filing, LIC said the department of economic affairs, ministry of finance, has decided in public interest, to grant a one-time exemption to the company to achieve 25 per cent minimum public shareholding (MPS) within 10 years from the date of listing, that is, May 2032.

LIC listed on the bourses on May 17, 2022, and had to meet the 25 per cent MPS rule by 2027. However, it has received an extension and would need to meet the criteria by May 2032.

According to the rules, a listed entity with a market cap of more than Rs 1 trillion needs to reach the 25 per cent MPS threshold within five years of listing.

On the operational front, the largest insurer continues to disappoint.

On a year-to-date basis, LIC’s total annual premium equivalent (APE) slipped by 20 per cent. Group APE, too, saw a sharp 40 per cent fall. The company’s market share was at 58.8 per cent as of November 30, 2023, compared to 67.7 per cent a year ago. The value of new business margins for the first half of FY24 stood flat at 14.6 per cent.

The company has been focusing on product-mix improvements, with stress on the non-participating (non-PAR) segment, said KR Choksey Research.

The company is expected to capitalise on the industry’s growth opportunities, aided by its significant assets under management (AUM) and geographical expansion.

Brokerage firm Motilal Oswal Financial Services (MOFSL), however, has a 'buy' rating on LIC with a target price of Rs 850 per share.

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

The brokerage firm expects LIC to deliver a 3 per cent compound annual growth rate (CAGR) (decline in FY24 and a sharp recovery in FY25) in APE over FY23-25. This will enable a 9 per cent value of new business (VNB) CAGR.

It, however, expects operating return on embedded value (EV) to remain modest at 10.5 per cent, given its lower margin profile than private peers and a large EV base.

LIC is trading at 0.6 times FY24 EV, which appears reasonable, considering the gradual recovery in margin and diversification in the business mix.

“We cut our VNB estimates to factor in the decline in VNB margins. However, we raise our EV estimates owing to better-than-expected equity market returns,” MOFSL had said in its September quarter results update.