JPMorgan “Excess” of LIC with a target price implying a 28% increase

JPMorgan has started reporting on Life Insurance Corporation of India with an overweight rating, citing that the market misjudged stocks, which fell 31% after their initial public offering.

The research firm has a target price for 840 rupees for March 2023, suggesting a 28% increase for India’s largest insurer, according to its June 20 note. “We are overweight at LIC, given its attractive ratings.”

JPMorgan’s optimism stems from the “unreasonably strict” price of the built-in LIC value of 0.75 times. EV is a measure of the market value of the insurer’s current and future policies. LIC will release its embedded value next June 30th.

Prior to the IPO, LIC’s operations were largely focused on participatory policies – where surplus profits are shared with policyholders – allowing for constant cash flows.

Amendments to the LIC Act prior to the listing led to the separation of participating and non-participating funds with a revised shareholder distribution policy (95: 5 to 90:10 by fiscal year 25), JPMorgan said. LIC is working to diversify its product mix to an abnormal segment with a growing margin, he said.

The market views LIC as a proxy in the stock market and the recent weakness in the markets is exaggerated, the note said. We do not anticipate LIC trading in private sector estimates of 2-3x P / EV, but our target price for March 2023 of 840 Rs is based on 1x FY23E P / EV (price to embedded value), which we believe is justified of mainly nominal book, surplus assets in the balance sheet and solvency ratio of 185%.

Of the other two brokerage firms tracking LIC, Macquarie is “neutral” and Emkay Global recommends “holding” the stock, according to Bloomberg. The average value of analysts’ target prices suggests a potential up of 42.6%.

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