Buy LIC Ltd for the Target Rs.1,100 by Emkay Global Financial Services Ltd
LIC delivered a strong Q4FY26 performance, with VNB margin at 25.7% (+6.9ppt YoY) beating our estimate of 20.5%; APE stood at Rs229.5bn (+21.8% YoY), higher than our estimate of Rs212.8bn. The strong VNB margin delivery during the quarter was driven by robust growth in the non-par segment and favorable movement in the yield curve. The Board declared a final dividend of Rs10/sh (pre-bonus: Rs20/sh) and remains conservative on maintaining solvency capital given that the implementation of ‘Risk Based Solvency’ could impact solvency capital after the transition. Going forward, while the corporation will see consolidation with respect to its product mix, the management remains focused on growing the absolute VNB. To bake in the Q4 developments, we increase our APE estimates by 4-5% while raising our VNB margin estimates by 200-240bps; this results in ~15-16% increase in VNB over FY27-28E. We maintain BUY on LIC and increase Mar-27E TP by 10% to Rs1,100 (from Rs1,000) implying FY28E P/EV of 0.7x.
Strong performance led by robust VNB margin delivery
For Q4FY26, APE at Rs229.5bn grew 22% YoY and was ~8% ahead of our estimates, while FY26 APE at Rs670bn (+18% YoY) beat our estimate by 2.6%. Q4 VNB margin stood at 25.7%, expanding by 6.9ppt YoY and higher than our estimate of 20.5%; this led to FY26 VNB margin of 21.2% (Emkay: 19.4%). As a result, VNB at Rs58.9bn for Q4 increased 67% YoY, beating our estimate of Rs43.5bn; FY26 VNB at Rs141.8bn increased 41.6% YoY, higher than our estimate by ~12%. EV at Rs7,892bn grew 1.6% YoY, impacted by negative economic variance and was 2% ahead of our estimate. Further, the EV saw negative variance on account of changes in operating assumptions, owing to persistency and expenses being adverse in some business lines. Solvency margin increased to 235%, while persistency saw a slight deterioration among a few cohorts.
Focus remains on VNB growth; the management conservative on solvency
While the management mentioned that the product mix will see consolidation going forward, it aims to expand VNB margins by targeting high-ticket-size policies and improving persistency. However, the management remains focused on growing the absolute VNB, which could be driven by either expansion in VNB margins or growth in APE. Further, the corporation declared a final dividend of Rs10/sh (pre-bonus: Rs20/sh) and maintained prudence in maintaining solvency levels at 235%, as LIC’s higher share of Par products and share of Equities in AUM could result in higher solvency capital requirements as and when it transitions to the Risk Based Solvency framework. Also, the corporation’s solvency capital would be consumed to drive growth in profitable segments
We maintain BUY and increase our TP to Rs1,100
To reflect the Q4 developments, we change our estimates – we increase APE by around 4-5% and VNB margin by 200-240bps; this leads to ~15-16% increase in VNB over FY27- 28E. Our EV estimates increase by ~1% over FY27-28. We maintain BUY on LIC and increase Mar-27E TP by ~10% to Rs1,100 from Rs1,000, implying FY28E P/EV of 0.7x.
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