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Healthy growth in premium income:

LIC of India net premium income in Q3FY24 was Rs 1.2 Lakhs Cr, up by 8.9% QoQ/4.6% YoY. The single digit growth in net premium income was driven by single premium growth of 22.4% YoY/9.9% QoQ, however, first year premium declined by 15.6% QoQ/13.3% YoY. Similarly APE reported growth 0.5% QoQ/6.9% YoY to Rs 13,163 Cr while new business premium increased by 10.9% QoQ/4.1% YoY to Rs 55,575 Cr which was led by group business premium growth of 18.9% QoQ/7.6% YoY.

VNB growth and margin expansion:

Value of new business (VNB) during the quarter increased by 31.6% QoQ/46.3% YoY to Rs 2,634 Cr. VNB margin expanded by 541bps QoQ/YoY to 20%. The growth in VNB was mainly due to the growth in non-par policies which gained traction during the quarter. VNB from non-par products increased by 49.6% YoY in 9MFY24 to Rs 2,106 Cr along with margin expansion of 20bps YoY to 63.8%. VNB from individual business reported growth of 11.6% YoY along while margin expanded by 180bps. The management remains confident to maintain the VNB margin above 20% consistently going forward which shall aid the VNB growth.

Growth in non-par products:

During the quarter, LIC saw an uptick in the non-participating products. In the overall APE mix, individual non-par saw a growth of 78.3% QoQ/92% YoY while par products de-grew by 7.5% QoQ/9.4% YoY. The non-par product has increased by 571.3bps QoQ/580.7bps YoY to 13.1% of the overall APE mix. The management remains optimistic of the growth of non-par products in estimates and expects non-par proportion to be 15% in the overall APE mix.

Diversification of distribution channels:

The company continues to have an agency dominated product mix. During the period 9MFY24, agency contribution was 95.9%. During the 9MFY24, its agency force increased by 51,000 agents. The company aims to increase its bancassurance channel by collaborating with bank for distribution of its products while it also aims to increase its digital footprint by tech

Guidance going forward:

The management remain optimistic of the business growth going forward as the insurance company aims to grow its APE in double digits on a high base of last year. The company aims to increase its margin by increasing portion of non-par products in the overall product mix and maintaining margin of more than 20%. It shall continue to launch product which will benefit the customers, be competitive in the market and benefit the shareholders.

Valuation and outlook:

LIC posted results above expectation in terms of policy growth and margins. The company managed to increase the portion of non-par products which aided the margin. The company’s recently launched product remained competitive in the market while it continued to maintain leadership position in both group and individual business. We expect its APE/VNB to grow at 9.4%/16.5% CAGR over FY23-26E and revise our rating to Accumulate (from Hold) along with target price revision to Rs 1,232 valuing the company at 1x of its FY26E embedded value.

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