LIC stock valuation 'undemanding'. But can this stock deliver strong returns?

A multifold rise in December quarter (Q3 FY23) profit for Life Insurance Corporation of India (LIC) was in line with Street expectations. Analysts said the LIC stock trades at valuations that are undemanding. But they see a lack of catalysts to lift the stock higher. For now, a couple of brokerages kept their 'hold' ratings intact on the stock, with price targets that suggest a limited upside potential ahead.

The state-owned life insurer last week reported a multi-fold surge in net profit at Rs 6,334 crore for the December quarter against Rs 235 crore in the year-ago period, thanks to a change in its accounting policy. LIC said its net premium income jumped 15 per cent to Rs 1.10 lakh crore from Rs 97,620 crore YoY. The company's gross value of the new business (VNB), which measures expected profit from new premiums and is a key gauge for future growth, stood at Rs 7,187 crore, while VNB margins came in at 19.1 per cent.

Currently, LIC is trading on an undemanding valuation of FY24E P/EV of 0.63x. However, given the lack of positive catalysts, we continue to maintain our neutral view on the stock. We reiterate our Hold rating on the stock with our revised Dec-23E TP of Rs700 (0.75x Dec-23E P/EV).

Emkay Global Financial Services, in its report, said, "LIC's 9MFY23 results came broadly in line with our estimates with APE (Annualized premium equivalent) of Rs 37,550 crore (our estimate: Rs 38,900 crore), VNB of Rs 5,480 crore (estimate: Rs 5,640 crore), and VNB margin of 14.6 per cent (estimate: 14.5 per cent). Overall APE growth moderated materially to 25.5 per cent YoY in 9MFY23 vs 36.7 per cent for HY23. Currently, LIC is trading on an undemanding valuation of FY24E P/EV of 0.63x. However, given the lack of positive catalysts, we continue to maintain our neutral view on the stock. We reiterate our hold rating with our revised December-23E target price of Rs 700 (0.75x Dec-23E P/EV)."

The brokerage also stated, "On the operating cost front, adjusted for single premium and group businesses, LIC's cost ratio remains inflated and sticky. With around 1.8 per cent of retail APE coming from more than Rs 5 lakh annual premium, LIC is better positioned when it comes to 10(10D)-related proposed changes in the Union Budget. However, the nudge towards the exemption-less new tax regime could pose a challenge for LIC."

Given its massive size and legacy book, operating parameters such as persistency, commission ratio, individual product mix, and opex ratios were broadly stable adjusted for one-offs, Emkay Global further said.

JM Financial Institutional Securities said, "Current valuation of LIC of 0.5x FY25E EV is undemanding and we expect it to rerate on the back of its keys strengths: large customer base, huge agency network (accounted for 52.30 per cent of total industry agents as of December 22), strong brand equity and, importantly, the sovereign guarantee (on sum assured and bonuses) attached to LIC policies. Maintain buy rating with a target price of Rs 940, valuing LIC at 0.8x FY25E EV."

Technical view

Osho Krishan, Senior Analyst - Technical & Derivative Research at Angel One, said, "LIC has corrected nearly 20 per cent in the calendar year 2023 to re-enter the oversold region. Technically, the data is insufficient to have an overview from a broader perspective. But looking at the ongoing trend, the stocks seem to be in a corrective phase, having nearby support of Rs 580-600-odd zone. And any breakdown below the mentioned support could disrupt the technical charts. On the flip side, a series of resistance can be seen from the Rs 660-680 zone, followed by a sturdy hurdle of Rs 720 level. One needs to keep a close tab on the mentioned levels as any breakthrough could dictate the near-term trend in the counter."

Pravesh Gour, Senior Technical Analyst, Swastika Investmart, said, "The counter is in a downward trend, but in the last few trading sessions, it has made an astute recovery from the Rs 580-585 zone with strong volume, which was multi-month support for the counter. The overall structure is distorted as it trades below its all-important moving averages, but it is in a demand zone near Rs 580-585. On the upside, Rs 660 is an immediate susceptible area; above this, we can expect a near-term run-up to 700-plus levels, while Rs 580 is an immediate demand level."

AR Ramachandran from Tips2trades said, "LIC has strong resistance at Rs 640 on the daily charts. A daily close above this level could be very bullish and lead to targets of Rs 692-746 in the near term. Support will be at Rs 583."

The stock was last seen trading higher than 5-day moving averages but lower than 20-day, 50-, 100- and 200-day moving averages. The counter's 14-day relative strength index (RSI) came at 32.01. A level below 30 is defined as oversold while a value above 70 is considered overbought.

LIC has an average target price of Rs 865.67, Trendlyne data showed, suggesting a potential upside of 41.92 per cent.

The stock slipped today, halting its upward trend of five straight sessions. It fell 1.77 per cent to hit a day low of Rs 609.10 over a previous close of Rs 620.10.

Meanwhile, Indian equity benchmarks traded lower in afternoon deals, dragged by banks, financials, automobile, technology and energy stocks.

Also read: Nykaa shares fall ahead of Q3 results. Here're analyst projections

Also read: EKI Energy Services shares crash 20% to hit 52-week low after quarterly results