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Result Highlights

* VNB margin: Calculated VNB margin for 4QFY23 rose 474bps QoQ to 19.4%

* VNB growth: VNB grew 106% QoQ, due to growth in total APE and margin expansion ? APE growth: New business APE grew 55% QoQ, driven by growth in Individual Par APE

* Expense control: Expense ratio increased by 393bps/272bps QoQ/YoY to 16.3%, where QoQ the opex ratio was up 318bps and comm. ratio 74bps

* Persistency: 37th month ratio fell/rose -41/535bps QoQ/YoY to 64.9% whereas 61st month ratio fell/rose -42/37bps QoQ/YoY to 56.0%

Our view – LIC least dependent on large-ticket policies

Growth issues related to large-ticket policies impact LIC minimally and the company should be able to tide over this in FY24: The sequential APE growth for key segments Group business, Individual Par and Individual Non-Par was 10%, 78% and 36%, respectively. There was some setback to the Group business in the fourth quarter. Some improvements have been made to annuity yield offered to customers in recent quarters, which should lead to improved growth. There should also be improvement in both NonPar savings and protection growth driven by training inputs to agents and activating them. The intention is not to constrain Par business in any way but to grow Non-Par faster. The share of policies with more than Rs 0.5mn ticket size is 0.04% in terms of number of policies and 3.5% in terms of business. The company should be able to make up for this easily in FY24 with the help of other products

There has been improvement in overall VNB margin in FY23 but the full impact of some negative pricing changes will be felt in FY24: In order to remain competitive, the benefit to customers has been improved, which has led to reduction in margin by 90 bps in FY23. In FY23, gross Non-par VNB margin (including ULIP) collapsed from 103.6% in FY22 to 70.4% due to re-pricing in products as well as, presumably, rising share of ULIP. However, this was more than offset by rising margin in Group business and Par business. The improved margin in Group business is expected to sustain.

We maintain ‘BUY’ rating on LIC with a revised price target of Rs 750: We value LIC at 0.7x FY24 P/EV for an FY24E/25E RoEV profile of 10.4/10.5%. We prefer IPRU, SBIL and MFS in the life insurance space.

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