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Gradual diversification toward non-par & protection

* LIC reported a PAT of INR95.4b in 1QFY24, up 14x YoY, due to the transfer of INR74.9b from Non-Par to shareholders’ accounts (related to accretion on available solvency margin).

* Net premium was flat YoY to INR983b in 1QFY24, but market share (based on first-year premium) dropped to 61.4% from 65.4% in 1QFY23.

* VNB (net) declined 6.8% YoY to INR13.0b, hit by a 7.2% decline in APE. However, VNB margin (net) remained flattish at 13.7% vs. 13.6% in 1QFY23.

* Net margin in the Individual Par segment came in to 10.1% vs. 11% in 1QFY23. For the Non-Par segment, it declined to 43.3% vs. 72.4% in 1QFY23. In the group segment, net margin improved to 13.9% vs. 10.0% in 1QFY23.

* We expect LICI to deliver a 15% CAGR in APE over FY23-25, thus enabling a 27% VNB CAGR. We reiterate our BUY rating on the stock with a TP of INR 850 (0.7x FY25E EV).

Gradual diversification in business; Persistency ratio improves YoY

* In 1QFY24, LIC’s renewal premium rose 6.7% YoY to INR536b, while the first-year premium and single premium declined 8.3% and 6.7%. Total individual premium increased 4.6% YoY to INR628b, while total group premium was down 7.2% YoY during the quarter.

* The share of participatory products reduced to 89.8% from 92.2% in 1QFY23. The non-par APE increased to INR6.1b in 1QFY24 from INR5.0b 1QFY23, registering a 21.6% YoY growth.

* On the distribution front, the share of agency channel stands at 96.5%. On a YoY basis, the share of banca channel increased to 3.2% in 1QFY24 from 2.7% in 1QFY23.

* On a premium basis, 13th/61st month persistency improved to 78.4%/ 62.7% from 77.9%/62.4% in 1QFY23.

* AUM increased to INR46t as of 1QFY24 from INR41t as of 1QFY23, reporting an increase of 12.4% YoY.

* On an NBP basis, the share of PAR products moderated YoY to 63.1%. Annuity/Pension and ULIP constituted a bulk of the residual with a share of 27% and 7%. Term products contributed only 0.4%.

Highlights from the management commentary

* In the group business, the annuity component has contributed favorably, which led to improvement in margins. Furthermore, the products are being reviewed and modified regularly to make the offerings more competitive. Also, LIC is working on various innovative designs to fill in product gaps.

* In July, LIC launched a very competitive product (return of premium product) on the protection side. Protection share is expected to improve from the direct and online channel.

* LIC re-priced its term policy rates last year, which had an impact on sales. The repricing was implemented to enhance the competitiveness of the products. The adjustment period has now passed, and we anticipate a rebound in sales moving forward.

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