LIC shares surge 3% post robust Q1; should you buy, hold, or sell?

Shares of Life Insurance Corporation of India (LIC) surged more than 3% in intraday trade on Tuesday after the country’s largest insurer reported robust earnings in the June quarter of 2022. The state-owned company has reported multifold year-on-year growth in its net profit for the April-June quarter of the current fiscal year, while it declined marginally on a sequential basis.

Reacting to Q1 results, LIC shares opened higher at ₹693.90, against the previous closing price of ₹682.15 on the BSE. During the session so far, the stock gained as much as 3.56% to hit an intraday high of ₹706.50. In comparision, the BSE Sensex was trading 226 points higher at 59,688 at the time of reporting.

With a market capitalisation of ₹4,42,054 crore, the largecap stock is trading 23% lower than its 52-week high of ₹920 touched on its market debut on May 17, 2022. LIC, which raised ₹20,557 crore in the country’s biggest-ever public offering, is one of the worst performing IPO of this year, trading 25.5% lower than its offer price of ₹949. The stock has eroded investors’ wealth by ₹1.6 lakh crore as market capitalisation dropped to ₹4.4 lakh crore as compared to the valuation of around ₹6 lakh crore during the market debut.

On Saturday, the insurance behemoth reported a sharp rise in its June quarter net profit at ₹682.89 crore, compared to ₹2.94 crore in the Covid-disrupted last year’s June quarter. On a sequential basis, the insurer’s net profit dropped from ₹2,371 crore in March quarter of 2022. The total income stood at ₹1,68,881 crore in Q1 FY23, versus ₹1,54,153 crore in the year-ago period and ₹2,11,451 crore in the March quarter.

For the quarter ended June 2022, LIC registered an increase of 20.35% in the total premium income at ₹98,352 crore as compared to ₹81,721 crore in the corresponding period of the previous year. On an annualised premium equivalent (APE) basis, the total premium was ₹10,270 crore for the quarter under review. Of this 62.80% (₹6,450 crore) was accounted for by the individual business and 37.20% (₹3,819 crore) by the group business.

During the quarter under review, the asset under management (AUM) increased to ₹41.02 lakh crore as compared to ₹38.13 Lakh crore in Q1 FY22, up 7.57% on yearly basis.

As of June 2022, LIC had agency strength at 1.33 million, as compared to 1.34 million as of June 30, 2021. The percentage of agents working in rural areas was 48% whereas the remaining 52% operated in urban areas.

“As the Covid situation normalises, we are seeing a larger activity on the ground, therefore bringing us back closer to our model of having “feet on street” and continuous in person engagement with our customers. While the growth numbers are very robust for the first quarter as seen in comparison to the same quarter of FY 2021-22, we are aware that the Q1 of the previous year, FY 2021-22 was impacted by a very tough second wave of Covid. However, the trajectory seems upwards for sure and we are looking at increased business volumes as is evident in our market share in the year to date since January 2022,” said M.R. Kumar, chairperson, LIC.

Analysts' view of Q1 results

Post Q1 results, global brokerage Macquarie Capital Securities has upgraded the stock to "outperform" from "neutral", citing its low valuations. The brokerage firm, however, lowered its price target by 15% to ₹850.

Domestic brokerage Motilal Oswal has maintained its “buy” rating on LIC shares with an unchanged target price of ₹830, saying that its cheap valuation “appears reasonable, considering the gradual recovery in margin and diversification in the business mix”.

Emkay Global Finance has a neutral view on the stock with a price target of ₹800, saying that the company has registered a steady performance in the June quarter. "However, the Q1 performance does not address our key concerns regarding LIC, thus leading to our neutral view on the stock," it said in a note.