LIC Shares Witness Substantial Gain, Sparked by New Product Launch

LIC Shares Witness Substantial Gain, Sparked by New Product Launch

LIC Shares Witness Substantial Gain, Sparked by New Product Launch

Life Insurance Corporation of India (LIC) saw its shares surge notably in November, recording a significant monthly increase of 12.83% – the largest since its listing in May 2022. The stock recently crossed the ₹700 mark, closing at ₹719, approaching its 52-week high of ₹754.20.

Factors Behind the Upswing

The positive momentum in LIC shares is largely attributed to the introduction of its new non-par product, ‘Jeevan Utsav,’ which offers a mix of limited pay options with lifelong income. This product aims to celebrate life, and its launch has generated considerable investor interest.

Analysis by Kotak Institutional Equities

Kotak Institutional Equities noted that ‘Jeevan Utsav’ offers an internal rate of return (IRR) ranging from 4.0% to 5.5% for select cohorts. Although these rates are slightly lower than those offered by non-par products from leading private players, the new product could enhance LIC’s overall margins. Kotak is optimistic about LIC’s marketing agency force, primarily focused on par policies, but capable of effectively promoting non-par policies as well.

Valuation and Future Outlook

The brokerage valued LIC’s core business at 5x Value of New Business (VNB), translating to 1.1x Embedded Value (EV), a valuation lower than private peers. LIC’s slower EV growth and lower Return on Embedded Value (RoEV) were highlighted as differentiators. Kotak projects a modest APE growth for FY2024E, followed by a gradual increase in the following years, with margins remaining rangebound.

Impact of Unrealised Equity Gains

The brokerage factored in a 50% discount to LIC’s unrealised equity gains, resulting in a Fair Value (target price) of ₹1,040 per share. These gains constitute a significant portion of the overall Fair Value assessment, and the target price indicates a potential upside of 45% from its previous closing price.

Capital Market and Embedded Value

The positive momentum in the capital market is seen as a favorable factor for LIC’s EV. Any improvement in core performance is expected to bolster LIC’s investment case further.

In summary, the introduction of ‘Jeevan Utsav’ and positive market dynamics have contributed to the uptrend in LIC shares, with investor sentiment buoyed by the new product and the company’s strategic positioning.

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