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* LIC reported a PAT of INR134.3b in 4QFY23, up 4x YoY. This was a result of the transfer of INR73b from the Non-Par segment to shareholders’ account pertaining to accretion on the available solvency margin in 4QFY23. For FY23, PAT grew 8x YoY to INR364b.

* APE grew 12% YoY (55% QoQ) to INR191.3b in 4QFY23 (INR566.8b in FY23). 4QFY23 VNB stood at INR37b as VNB margin increased by 476bp QoQ to 19.4%. For FY23, VNB margin improved to 16.2% v/s 15.1% in FY22.

* The Individual/Group business constituted 68%/32% of APE in FY23. In the Individual business, the share of PAR products remained largely stable at ~91%. In total NBP, the share of PAR products was lower at 66% in FY23. Annuity/Pension and ULIPs constituted the bulk of residual, with 25% and 7%, respectively.

* Gross margin in the Individual Par segment improved to 14.6% v/s 14.4% in 9MFY23. For the Non-Par segment, it moderated to 70.4% v/s 73.5% in 9MFY23. In the group segment, gross margin improved to 22.1% in FY23.

* We slightly raise our FY24/FY25 VNB estimates by 4%/6%. We estimate LICI to deliver a 15% CAGR in APE over FY23-25, thus enabling a 27% VNB CAGR. We maintain our BUY rating.

Persistency ratios deteriorate sequentially; Agency channel gaining traction

* On NBP basis, the share of PAR products moderated QoQ to 65.9%. Annuity/Pension and ULIP constituted a bulk of the residual with a share of 25% and 7%, respectively. Term products contributed only 0.4%.

* Sales (Individual NBP) in the banca channel grew 26% YoY to INR20.2b in FY23. This channel now contributes 3.4% of overall sales v/s 2.9% in FY22. Incremental focus and a wider product offering will continue to drive higher sales from this channel.

* Growth in the agency channel (Individual NBP) was modest at 7% YoY to INR565b. However, LIC is continuously training agents to sell Non-Par products. Agency contributed 96% of individual NBP in FY23.

* The persistency ratio moderated sequentially for most cohorts other than the 25th month persistency, which grew by 46bp QoQ.

Highlights from the management commentary

* Share of non-par reduced in FY23 due to change in the customer demand and intent is to grow the non-par share without ignoring the par business.

* The economic variance was negative because of both equities and debt segment movement.

* In FY23, INR272.4b of PAT has been transferred from non-par book to shareholders funds pertaining to accretion on available solvency margin surplus. ? The wage revision is done once in five years, and it does not impact EV as only 10% cost is apportioned in the par business.

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