Rating: BUY | LIC maximises non-par growth

LIC reported a 12% decline in annualised premium equivalent (APE) during the Q2FY24, primarily attributed to the weakness in the group business. Individual APE witnessed a positive growth of 6%, while group APE saw a substantial decrease of 35%. The group APE was down 35%. It tends to exhibit volatility and might show improvement 2H. The value of new business (VNB) margins remained stagnant at 14.6% (net) y-o-y, resulting in a 12% decline in VNB. Margins in the non-participating business, inclusive of unit linked insurance plans (ULIP), experienced a decline of 1,200 bps year-on-year but remained relatively high at 54%. The management attributed this decline to the repricing of annuities.

The group business’ margins expanded 60 bps y-o-y to 15.2%. Par margin was up 20 bps y-o-y to 10.5%, despite a change in surplus sharing formula, tempered by adverse interest rate movement.

Overall marketing efforts for non-par products remain comparatively subdued, and the company needs to step up on this.EV growth high

LIC recorded a 14% growth in embedded value (EV) during the first six months of FY2024 (non-annualized). Although the company did not disclose the EV breakdown for 1H, a rough estimate indicates capital gains exceeding `500 billion in that period. With approximately 25% of its portfolio in equity investments, LIC is presumed to have capitalised on the upward momentum in the capital markets.

Retain BUY; FV Rs 1,040

We are tweaking our estimates to factor in flat volumes; margin expansion remains moderate to 17.6% in FY2025E from 16.2% in FY2023.

PAT declines

LIC reported a PAT of `79 billion in 2QFY24, down from Rs 159 billion in 2QFY23. The base period has elevated PAT due to the bunching up of income recognised on its available solvency capital for three quarters.

LIC reported weak volumes

Despite LIC’s exposure to high-ticket size policies being negligible, APE declined 12% y-o-y in 2QFY24 and 7% y-o-y in 1QFY24. Individual APE growth was also muted at 6% y-o-y. The VNB margin expansion was muted during the quarter at 5 bps y-o-y, as the effect of the change in product mix was offset by lower product level margins.