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Net premium up 16% YoY, VNB margin rises 20bp YoY to 13.9%

Guides for medium-term VNB margin of 20%+

* LIC’s 1QFY25 PAT grew 10% YoY to INR105b. Net premium income rose 16% YoY to INR1,138b, resulting in a market share of 64% vs. 61.4% in 1QFY24.

* VNB (net) increased 10% YoY to INR16.1b, whereas APE grew 21% YoY to INR115.6b. VNB margin (net) expanded to 13.9% vs. 13.7% in 1QFY24.

* We raise our premium growth estimates and lower our VNB margin estimates for FY25/FY26. With the increase in the share of the non-par segment, we expect VNB margin to improve to 18% by FY26. Reiterate BUY with a TP of INR1,350 (premised on 0.9x FY26E EV).

APE share of Non-Par individual business improves

* LIC’s first/renewal/single premium rose 10%/5%/31% YoY to INR74.7b/ INR564b/INR500b. For 1QFY25, individual new business premium income increased by 13.7% to INR 118.9b.

* On APE basis, total premium came in at INR115.6b. Within the Individual Business, the share of Par products on APE basis was 76.1% vs. 90% in 1QYF24.

* Non-Par APE stood at INR16.2b, up 165.6% from INR6.1b in 1QFY24. Resultantly, the share of non-par products increased to 23.9% from 10% in 1QFY24.

* On the distribution front, the share of the agency channel stood at 95.8% vs. 96.5% in 1QFY24. The share of the banca channel marginally improved to 3.5% YoY in 1QFY25 from 3.2% in 1QFY24.

* The 13th/25th/37th/49th/61st month persistency stood at 72.4%/68.8%/ 66.4%/60.7%/58.4% in 1QFY25 vs. 75.1%/70.9%/64.3%/61.6%/59.3% in 1QFY24.

* AUM increased to INR54t in 1QFY25 from INR46t in 1QFY24, up 16% YoY.

* The yield on investments on policyholder’s funds excluding unrealized gains was 8.54% in 1QFY25 vs. 8.78% in 1QFY24.

Highlights from the management commentary

* VNB margin is a result of overall business mix and marketing strategy of the company. Within Par segment, the decline in VNB margins was due to the business mix. The downward trends in risk-free rates also affected margins.

* LIC has to make the products competitive, which might hurt margins; however, the introduction of new products might offset the impact. The medium-term target for VNB margins is 20%+, with the focus on Non-par business.

* On a policy basis, 13M persistency has improved. Persistency can improve further if the ticket sizes are increased; however, with the challenges of affordability, small ticket sizes still remain.

Valuation and view

LIC has levers in place to maintain its industry-leading position and ramp up growth in the highly profitable product segments (mainly Protection, Non-PAR, and Savings Annuity). New product launches and the fast-paced implementation of digital tools will enable LIC to bridge the gap with private players. We have raised our premium growth estimates and lowered our VNB margin estimates for FY25/FY26. With the increase in the share of the non-par segment, we expect VNB margin to improve to 18% by FY26. We expect LIC to deliver a 12% CAGR in APE over FY24-26, enabling a 16% VNB CAGR. However, we expect operating RoEV to remain modest at 9.6% in FY26, given its lower margin profile than private peers and a large EV base. Reiterate BUY with a TP of INR1,350 (premised on 0.9x FY26E EV)

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