Buy Life Insurance Corporation Ltd for the Target Rs 550 by Emkay Global Financial Services Ltd
LIC reported strong performance during 1QFY27, with strong VNB margin delivery at 22.9% (+7.5ppt yoy), beating our estimate of 18.5%. APE at ~Rs137bn grew ~8% yoy, marginally lower than our estimate of ~Rs138bn. As a result, VNB at Rs31.4bn grew at a robust 61% yoy, and was higher than our estimate of Rs25.6bn. The strong VNB margin delivery was primarily driven by improvement in business mix with an increase in ticket sizes, along with interest-rate movements, offset by changes in persistency assumptions and GST ITC loss impact. Going forward, the management remains focused on growing the high-margin non-par products. It expects VNB margin to improve further, led by a favorable product mix, and remains ambitious of delivering VNB margin at mid-20s. To bake in 1Q developments, we tweak our estimates, resulting in slight cuts in APE estimates; we increase VNB margin estimates by ~170-180bps over FY27-29, resulting in a ~7-8% increase in VNB estimates. We maintain BUY and Jun-27E TP of Rs550, implying FY28E P/EV of 0.7x.
Strong VNB margin drives robust VNB growth
During 1QFY27, LIC’s APE grew 8% yoy to ~Rs137bn and was slightly lower than our estimate of Rs138bn. VNB margin at 22.9% increased by 750bps yoy and was higher than our estimate of 18.5%. The strong VNB margin delivery was driven by
1) Improvement in product mix
2) Impact of interest-rate movements (+500bps), offset by the impact of persistency experience, resulting in combined positive impact of 290bps
3) Negative impact of expenses, primarily driven by GST ITC losses. As a result, VNB at Rs31.4bn grew 61% yoy, and was higher than our estimate of Rs25.6bn. PAT at Rs134.9bn grew ~23% yoy and was ~9% higher than our estimate. Persistency across major cohorts softened yoy, while solvency ratio at 242% improved by 25ppt yoy.
Focus remains on margin-accretive products; VNB margin guidance at mid-20s
During 1QFY27, LIC witnessed an increase in the share of individual non-par products, led by strong growth in non-par savings and protection lines of business. The management expects ULIPs to gain traction as the market environment improves, and does not expect ULIPs to cannibalize the share of non-par savings products. The management remains focused on growing margin-accretive non-par products with higher ticket sizes. With increasing share of non-par products, the management expects VNB margins to improve further, and guided for VNB margins to settle at industry average rates, at mid-20s.
We maintain BUY and Jun-27E TP of Rs550
To bake in 1Q developments, we tweak our estimates, resulting in slight cuts in APE estimates. We increase our VNB margin estimates by 170-180bps over FY27-29, resulting in a ~7-8% increase in VNB estimates. We maintain BUY and Jun-27E TP of Rs550, implying FY28E P/EV of 0.7x
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