Shares of Life Insurance Corporation of India (LIC) have surged nearly 7 % since the insurer’s Q2 earnings were announced last week. The stock, which closed at Rs 628.05 on November 11 surged to an intraday high of Rs 671.30 on November 15, delivering returns of 6.83% to the investors. The earnings were announced after market hours on November 11 (Friday).
Apart from the rise in stock, the multifold rise in Q2 profit has turned brokerages bullish with one of them expecting an upside of 46% against Friday’s closing price of Rs 628.
The 46% projected rally in the LIC stock amounts to target of Rs 917. The target assigned by ICICI Securities if achieved will erase a majority of losses of investors, who were allotted shares during the IPO. The price band of IPO was Rs 902 to Rs 949 per share.
“Increasing non-participating mix and change in surplus distribution policy are significant growth drivers of value of new business (VNB) and in turn embedded value (EV). This, against the strong growth outlook of the Indian life insurance (especially through lens of sum assured), makes LIC a strong investment proposition. Concerns on equity sensitivity to EV are overdone and the relative ease of increasing VNB margin through change in mix is under-appreciated," ICICI Securities said.
LIC reported a standalone net profit of Rs 15,952 crore for the quarter ended September, against Rs 1,433 crore a year ago. Net premium income in Q2 rose 26.6% YoY to Rs 1.32 lakh crore. Net income from investments climbed 10% YoY to Rs 84,104 crore.
The income from first year premium during the quarter rose 11.3% year-on-year to Rs 9,125 crore. Single premium income rose sharply by 62% to Rs 66,901 crore.
The LIC stock listed at Rs 867.20 on May 17, 2022, a discount of 8.62 per cent against the IPO issue price. Since then, the stock has fallen 25.27%. In fact, the stock has remained below the IPO issue price with long term investors hoping for a reversal in the downward trend.
Meanwhile, financial services firm Motilal Oswal sees a 31% upside in the LIC stock post Q2 earnings.
“The company logged a strong financial performance in Q2, with a 48% YoY growth in annual premium equivalent (APE) to Rs 25,200 crore in the first half of FY23. Value of new business (VNB) rose 132% year-on-year (YoY) to Rs 3,680 crore as VNB margin improved by 530 bps to 14.6% in 1HFY23,” brokerage said in a report.
The brokerage has assigned a target price of Rs 870 against the current market price of Rs 665, Motilal Oswal said in a post earnings report dated November 14.
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