Buy Life Insurance Corporation Ltd For Target Rs.470 by Motilal Oswal Financial Services Ltd
Miss across APE and VNB; EV up 1% from Mar’26
* In 2QFY27, LIC’s new business APE grew 4% YoY to INR170b (8% miss). Individual APE declined 4% YoY to INR96.9b, while group APE rose 17% YoY to INR73.1b. For 1HFY27, APE grew 6% YoY.
* Absolute VNB grew 17% YoY to INR37b (14% miss), resulting in 250bp YoY VNB margin expansion to 21.8% (vs MOFSLe of 23.2%). For 1HFY27, VNB grew 34% YoY, with VNB margin of 22.3% (17.6% in 1HFY26).
* EV at INR8b grew 1% compared to Mar’26 EV of INR7.9b, with favorable contribution from core operations, while MTM movements were negative. LIC reported 20% YoY growth in shareholder PAT to INR121b (18% beat). For 1HFY27, PAT grew 21% YoY.
* Savings and protection businesses are expected to sustain healthy growth, with ULIPs recovering alongside equity markets. LIC is working to improve product expense ratios, which should support margin expansion and help narrow the gap with private-sector peers.
* We have cut our VNB margin estimates by 20bp for FY27/28 considering the performance in 2QFY27. We expect operating RoEV in the range of 11.5- 12%. Reiterate BUY with a TP of INR470 (premised on 0.6x FY28E EV).
Highlights from the management commentary
* Regulatory changes are expected to create better engagement opportunities with existing partners.
* LIC is stepping up agent training and awareness initiatives to improve annuity sales and reach customers seeking retirement income solutions.
* Banca channel picked up in 2Q after a subdued 1Q, with the momentum expected to continue through 3Q and the remainder of the year.
Valuation and view
* LIC reported a sequential dip in VNB margin and subdued quarter with respect to growth owing to weak ULIP demand. However, margin continues to expand YoY, led by increasing contribution of the non-par business and improving product-level margins. The growth trajectory is expected to improve as ULIP regains momentum, along with higher ticket sizes, improving agency channel productivity and continued growth in alternate channels. A shift toward highermargin non-par products, cost optimization, and improvement in persistency will boost VNB margin going forward.
* We have cut our VNB margin estimates by 20bp for FY27/28 considering the performance in 2QFY27. We expect operating RoEV in the range of 11.5-12%. Reiterate BUY with a TP of INR470 (premised on 0.6x FY28E EV).
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