Add Life Insurance Corporation Ltd For Target Rs. 1,100 By Emkay Global Financial Services Ltd
Strong backbook surplus; new business growth to pick up
LIC delivered an in-line Q4FY25 performance, with healthy VNB margin at 18.75% (Emkay: 17.9%). However, APE at Rs188.5bn declined 11% YoY albeit broadly in sync with our estimate. Share of Non-Par products in the Individual APE mix increased to ~28% for FY25 vs 18% for FY24. Going forward, the management remains optimistic about APE growth, which is likely to be largely driven by an increase in ticket size, whereas policy growth would remain subdued. With continued focus on expanding non-par share, the management has plans to expand the VNB margin, which though would be offset by APE growth, given the company’s goal of driving absolute VNB growth. To bake in the Q4 developments, we tweak our FY26-27 estimates which results in a ~1- 2% cut in VNB estimate. We retain ADD with unchanged Mar-26E TP of Rs1,100, implying ~FY27E P/EV of 0.7x.
In-line performance; lower opex, strong backbook surplus drive higher PAT
During FY25, APE at Rs568.3bn was flat YoY and in line with our estimate. However, Q4FY25 APE at Rs188.5bn witnessed 11% decline, although falling in line with our estimate. Driven by higher share of non-par products and better product-level margin, VNB margin for FY25 stood at 17.6% vs our estimate of 17.3%, whereas Q4FY25 VNB margin at 18.75% was higher than our estimate of 17.9%. Resultantly, VNB for FY25 at Rs100.1bn (up 4.5% YoY) was 1.8% ahead of our estimate, whereas Q4 VNB at Rs35.3bn was 5% higher than our expectations. EV at Rs7,769bn grew ~7% YoY, missing our estimate by 4.5% on account of impact of the negative economic variance. Driven by lower employee expense (owing to wage revision in Q4FY24) and strong backbook surplus generation, PAT at Rs481.5bn for FY25 grew 18.3% YoY, coming in higher than our estimate of Rs400bn. 13M persistency saw YoY decline, impacted by modification of products during FY24.
Balancing VNB margin and APE growth to drive VNB growth
The mgmt remains committed to its strategic focus of expanding non-par products for driving higher profitability and increasing the offerings available to customers. While APE growth during FY25 was impacted by increase in the minimum ticket size of policies, the management remains optimistic about growth being driven by increase in the ticket size. The mgmt has already seen some green shoots with higher acceptance of the minimum ticket-size culture. While VNB margin is likely to expand with focus on non-par products, the mgmt plans balancing the VNB margin with APE growth, driving growth in absolute VNB. The mgmt expects significant improvement in persistency going forward, given the corrective actions over the last 1-2Y that include increase in the minimum ticket size.
We maintain ADD with unchanged Mar-26E TP of Rs1,100
To bake in the Q4 developments, we tweak our FY26-27 estimates which leads to ~1- 2% cut in APE and a ~10bps increase in VNB margin resulting in a ~1-2% cut in VNB. We introduce FY28 estimates and maintain ADD on the stock with unchanged Mar-26E TP of Rs1,100, implying FY27E P/EV of 0.7x.
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