Shares of state-run Life Insurance Corporation of India (LIC), which has become India’s fourth biggest company in market value terms, rallied up to 6% to day’s high at Rs 1,150 on Monday after brokerages upgraded the stock and raised target prices following a strong set of numbers in Q3 earnings report card.

Global broking firm JPMorgan upgraded LIC to overweight from neutral and raised the target price to Rs 1,340 from Rs 690 earlier. Stating that price outperformance could continue in the near term, it recognised the growing market interest in the relative valuation merit of PSUs over private players.

Among domestic firms, Kotak Equities raised its target price on LIC from Rs 1,040 to Rs 1,300 and Emkay Global’s target has now increased from Rs 975 to Rs 1,200. Religare has upgraded the stock to accumulate from hold with a revised target price of Rs 1,232.

Driven by the launch of new products, LIC reported 46% growth in VNB in Q3 versus the 10% decline in 1HFY24. On the APE front, LIC clocked 21% YoY growth in Group APE in Q3FY24, bolstered by robust growth in the group term life segment.

The superior VNB margin delivery was aided by strong sequential growth in Non-Par products, led by the launch of the Whole Life Jeevan Utsav product.

“To reflect the developments during Q3FY24, we increased our VNB margin by ~1ppt and APE by ~3%, resulting in ~9-11% increase in VNB estimate for FY24E-26E. Post these changes, our operating RoEV for FY25-26E is ~11.4%, still slightly below the cost of equity and, hence, warranting some discount to the EV,” Emkay said.Also read | Modi effect? LIC shares zoom 9% to become 4th largest stock, bigger than ICICI BankIn its guidance, the PSU insurer said it aims to grow its APE in double digits on a high base of last year and increase its margin by increasing the portion of non-par products in the overall product mix and maintaining a margin of more than 20%. It shall continue to launch products which will benefit the customers, be competitive in the market and benefit the shareholders.

Kotak analysts note that the increasing MTM value of LIC’s investment book buoys its enterprise value (EV) and therefore provides a further upside.

In the first 9 months of the current fiscal year, Nifty rallied 10.5% QoQ in Q1, 2.3% in Q2 and 10.7% in Q3. Consequently, LIC’s equity investments also grew 9.7% QoQ in Q1, 3.2% in Q2 and 10.6% in Q3. “A backward calculation suggests economic variance may be Rs500 billion as against the Rs 1,292 billion change in equity AUM during 1HFY24. Net inflows to LIC’s investment book stood at Rs 168 billion in 1HFY24; hence, equity gains are a large part of the investment book/EV growth in 1HFY24,” Kotak said.

LIC’s value, however, remains sensitive to capital market movements, and any correction in capital markets can provide a downside to its EV and target price. In the last 3 months, the stock is up 82%.

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