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Higher target multiple needs healthier RoEV level

Our view – Growth improvement continues but with careful calibration of VNB margin

VNB margin - VNB margin has improved on YoY basis but the desired improvement is not entirely satisfactory in the context of LIC’s medium-term target: The VNB margin for 1QFY25 amounts to 13.9% compared with 13.7% in 1QFY24. There has been a positive impact of business mix change amounting to 370 bps. The share of Individual Non-Par business in total APE has risen 759 bps YoY to 14.0%. There has been a negative impact of 120 bps and 230 bps due to product benefits and assumptions, respectively. Of the impact due to assumptions, the major negative impact on VNB margin has been due to decline in risk-free rate. It has been seen that margin improves from 1Q to 4Q and that is what is expected this year as well. The intention is to move to a VNB margin of 20% plus in the medium-term. It may be noted that product bucket margin has declined on YoY basis for each of the broad product buckets.

APE growth – LIC has delivered far better growth performance in 1Q compared with what it did during FY24: Total APE has grown 21.3% YoY to Rs 115.60bn in 1QFY25. This is a much-improved growth performance compared with the flattish 0.5% YoY growth delivered in FY24. The Individual APE for 1QFY25 was up by 13.4% YoY to Rs. 67.47bn whereas the Group business has grown 34.4% YoY to Rs 48.13bn. Within Individual business, for 1QFY25, Par APE was down -3.9% YoY whereas, Non-Par APE (including ULIP) jumped 166% YoY. While the company does not plan to reduce Par business, there will be exceptional growth in Non-Par driven by the introduction of new products. The Individual NBP sourced via Banca and alternate channels was at Rs 4.11bn for 1QFY25, up by 22.27% YoY. Management stated that, going forward, there will be focus on alternate channels such as brokers and corporate agents. We maintain an ADD rating with a revised price target of Rs 1250: We value LIC at 0.8x FY26 P/EV for an FY25E/26E RoEV profile of 11.3/11.4%. We most prefer MFS and SBIL in the life insurance space.

Other Aspects (See “Our View” above for elaboration and insight)

? VNB growth: VNB de-grew -55.8% QoQ but grew 23.7% YoY to Rs. 16.10bn, sequentially driven lower by decrease in total APE and VNB margin.

? Expense control: Expense ratio fell by -434/-99bps QoQ/YoY to 11.9%, where QoQ the opex ratio was down -340bps and comm. ratio was down -94bps.

? Persistency: 37th month ratio rose 669/207bps QoQ/YoY to 66.4% whereas 61st month ratio rose/fell 393/-84bps QoQ/YoY to 58.4%

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