Street gives a thumbs up to LIC's results; most analysts bullish on stock

Analysts see an upside of over 24% in insurer's stock in one year

The market responded positively to Life Insurance Corporation of India’s (LIC’s) January-March quarter (Q4) and full year results for the 2022-23 financial year (FY23).

The insurer reported standalone net profit of Rs 13,428 crore for Q4FY23, which was a 466 per cent rise year-on-year (YoY) from Rs 2,371 crore. The PAT (profit after tax) for FY23 was at Rs 36,397 crore, which was below standalone PAT of Rs 40,404 crore, YoY for FY22.

At consolidated level, the unadjusted PAT for Q4 was at Rs  13,190 crore and at Rs 35,996 crore for FY23 versus Rs 2,409 crore (Q4FY22) and Rs 4,124 crore (FY22). There was a transfer of Rs 27,240 crore to profits net of tax in FY23 which accounts for some of the PAT expansion.

The consolidated net premium income for FY23 was at Rs 4,75,956 crore versus Rs 4,29,500 crore in FY22. But the Q4FY23 trend was negative with net premium income of Rs 1,32,223 crore versus Rs 1,44,158 crore. LIC's first-year premium during Q4FY23 stood at Rs 12,811 crore, down 12 per cent from Rs 14,614 crore in the year-ago quarter. Other income jumped to Rs 7,659 crore (FY23) from Rs 809 crore (FY22).

There was a big movement on the balance sheet with shareholder investments rising to Rs 28,176 crore versus Rs 5,227 crore in FY22. Income from investments rose marginally to Rs 67,846 crore for Q4 versus Rs 67,498 crore in Q4FY22.

The solvency ratio was slightly better at 1.87 for FY23 versus 1.85 for FY22. The expense ratio was up to 15.5 per cent (from 14.5 per cent). The gross non-performing assets (NPA) ratio for policyholder funds was at 2.6 per cent, down from 6 per cent in FY22. Net NPA was nil with full provisioning. The key yield on shareholders’ funds was at 6.48 per cent while the yield on policyholders’ funds was at 8.29 per cent (without unrealised gains).

Net commission during the quarter rose 5 per cent to Rs 8,428 crore. The same stood at Rs 7,996 crore in the previous year's period. For the full year, the insurer's profit declined 10 per cent to Rs 36,397 crore as against Rs 40,431 crore reported in FY22.

The gross value of new business (GVNB) was at Rs 11,553 crore for FY23, which is up 16.5 per cent YoY over Rs 9,920 crore for FY22. The net VNB margin for the FY23 is 16.2 per cent, an improvement compared to 15.1 per cent for FY22. The Indian embedded value has been determined at Rs 5,82,243 crore in FY23, compared to Rs 5,41,492 crore as of FY22, a growth of 7.53 per cent. The assets under management has grown 7.65 per cent YoY to Rs 43,97,205 crore.  

LIC continues to try and improve its non-par policy ratio which is currently under 10 per cent. It launched seven new non-par products during FY23. Number of new policies sold during FY23 declined to 20.4 million compared to 21.7 million in FY22.

Due to the multiple adjustments of PAT etc, and the shifts in shareholder funds, it’s hard to discern clear trends on profitability. As far as market share is concerned, the private life insurers are improving their share. The yield on shareholder assets is much lower than with the rivals. However, the market responded positively with the share rising by 1.5 per cent to Rs 603.

Of the 10 analysts that have recommendations since April, eight have a ‘buy/add/outperform’ rating on LIC stock. Their average one-year target price is Rs 751, indicating an upside of over 24 per cent.