Broker’s call: LIC India (Buy)
VNB at ₹3,710 crore grew around 17% y-o-y but was materially below our estimate of ₹4,240 crore
LIC India's second quarter performance in the financial year 2027-28 was less than anticipated. Annual premium equivalent (APE) reached ₹17,000 crore, growing by approximately 4%, but fell about 7% short of estimates. New business (VNB) margin at 21.8% increased by 250 basis points year-on-year, but was 110 basis points lower than the estimated 23.2%.
Consequently, VNB of ₹3,710 crore saw a 17% year-on-year increase, but was significantly below the estimated ₹4,240 crore. The decline in APE growth was primarily due to a 4% drop in individual APE, while Group APE surged by 17% year-on-year. VNB margins improved over the year due to a higher proportion of protection and annuity products, but dipped quarter-on-quarter mainly because of falling interest rates, which negatively impacted VNB margins by 120 basis points.
Persistency declined across cohorts, and the solvency ratio improved to 23%. Management remains optimistic about growth in the second half of the year, driven by new product launches and enhanced agent productivity. They anticipate margins to rise, aligning with peers. Adjusting for Q2 developments, APE estimates were cut by about 2% for FY27-28, and VNB margin by 40-60 basis points, leading to a 2-5% reduction in VNB over FY27-29 estimates.
The buy rating and September 27 earnings per share target of ₹550 imply a FY28E price-to-earnings value of 0.7x.
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