LIC stock surges 9% as Q2 profit jumps multifold; what should investors do now?

Shares of Life Insurance Corporation (LIC) of India rallied nearly 9% in opening trade on the BSE on Monday, registering their biggest intraday gain since listing, in an otherwise weak broader market. Shares of the state-owned insurance major witnessed a surge in buying activities as investors cheered its second-quarter results which beat D-Street estimates on most fronts.

Boosted by Q2 results, LIC of India's share price opened higher for the second straight session and gained as much as 8.7% to hit a high of ₹682.70 on the BSE. The large cap stock belled the day at ₹666.10, against Friday’s closing price of ₹628.05.

At 10:15 am, LIC of India shares were quoting at ₹664.55, up 5.8%, while the BSE benchmark Sensex was down 65 points at 61,729 levels. The market capitalisation stood at ₹4,20,327 crore, with 4.56 lakh shares changing hands on the BSE in the first hour of trade as compared with the two-week average volume of 1.42 lakh stocks.

The share price of LIC currently trades 26% lower than its all-time high of ₹920 touched on its market debut on May 17, 2022. The insurance stock is down 28% against its initial public offering (IPO) price of ₹949. LIC has turned out to be one of the worst-performing initial public offerings (IPO) of this year, eroding investors’ wealth by ₹1.8 lakh crore as market capitalisation dropped to ₹4.2 lakh crore as compared to the valuation of around ₹6 lakh crore during listing.

LIC Q2 profit zooms 11-fold to ₹15,952 cr

LIC of India, the largest insurance company in the country, posted a multifold growth in its net profit at ₹15,952 crore for the second quarter ended September 30, 2022 (Q2 FY23), from ₹1,433 crore in the same period last year and ₹682.9 crore in the June quarter of the current fiscal. The company has attributed the strong rise in profit to a change in its accounting policy.

LIC, the top-ranked Indian firm on the latest fortune Global 500 list, reported a net premium income of ₹1.32 lakh crore in Q2 FY23, up 27% from ₹1.04 lakh crore in the corresponding period last year. On the quarter-on-quarter (QoQ) basis, premium income climbed 34% from ₹98,352 crore in the April-June quarter of 2022.

During the quarter under review, the first-year premium, an indication of business growth, rose 11% to ₹9,124.7 crore, from ₹8,198.30 crore in the year-ago period. The renewal premium grew by 2% to ₹56,156 crore, while the single premium rose 62% to ₹66,901 crore. 

On the asset quality front, the insurance major’s gross non-performing assets (NPA) for the September quarter declined marginally to ₹26,111 crore, compared with ₹26,619 crore a quarter ago, and ₹28,929 crore a year ago. The gross NPA ratio improved to 5.60%, from 5.84% in Q1 FY23, and 6.57% in Q2 FY23.

What should investors do now?

As per Trendlyne data, 10 analysts have offered long term price targets for Life Insurance Corporation of India at an average target of ₹852.33, an upside of 28.23% from the last price of ₹664.70.

Domestic brokerage ICICI Securities has maintained “Buy” rating on LIC shares with a target price of ₹917 apiece, up 46% from Friday’s closing price of ₹628.

“Increasing non-participating mix and change in surplus distribution policy are significant growth drivers of value of new business (VNB) and in turn embedded value (EV). This, against the strong growth outlook of the Indian life insurance (especially through lens of sum assured), makes LIC a strong investment proposition. Concerns on equity sensitivity to EV are overdone and the relative ease of increasing VNB margin through change in mix is under-appreciated," ICICI Securities said in its latest report.

According to IIFL Securities, "LIC share price has given trend reversal on chart pattern in early session. The stock may go up to ₹700 to ₹720 apiece levels in near term. Those who have this stock in their portfolio are advised to hold for short term upside target of ₹720 keeping stop loss at ₹630.”

“For fresh investors with short term view, one can buy the stock at current levels for ₹720 target maintaining strict stop loss at ₹630 apiece levels," said Anuj Gupta, Vice President — Research at IIFL Securities.