Brokerages set LIC target prices with up to 50% upside, but surrender value concerns remain

Life Insurance Corporation of India (LIC) saw its stock rise by 1.70% on November 11, 2024, following its Q2 FY25 results. Despite a 3.8% year-on-year dip in net profit, brokerages remain optimistic, with some setting target prices as high as ₹1,385, indicating a potential 50% upside from the current level.

Citi set the highest target at ₹1,385, reflecting optimism in LIC’s future growth.

However, other analysts remain cautious about the potential impact of the new surrender value regulations, effective from October 1, 2024.

The new rules, which allow policies purchased after this date to receive surrender value from the first year, could lead to higher payouts, affecting insurers’ margins and potentially raising premiums.

Bernstein set a target of ₹1,190, citing LIC's growth in new business premiums, particularly in non-participating products, while also highlighting the risks posed by the revised surrender value norms.

Similarly, Kotak Institutional Equities maintained a target price of ₹1,250, noting the strong 47% growth in LIC’s value of new business (VNB) for Q2 FY25, driven by non-par momentum.

However, the brokerage flagged the risk of new surrender value guidelines negatively impacting growth momentum, especially if equities experience a market correction.

The brokerage further warned that the capital market rally, which boosted LIC’s embedded value (EV) in first half of FY25, could pose risks if market conditions reverse.

Despite these challenges, LIC’s leadership in the Indian life insurance sector remains strong. It retained its dominant position with a market share of 61.07% for the six months ended September 2024, up from 58.50% in the same period of the previous fiscal year.

Additionally, total premium income grew by 13.56% to ₹2.34 lakh crore for the half-year ended September 2024, compared to ₹2.06 lakh crore in the previous financial year’s first half.