Kotak Institutional Equities has reiterated a Buy call on LIC, citing a strong performance in Q4FY25, sharp improvements in margins, and embedded value growth. LIC's transformation journey continues to gain traction as the insurer focuses on increasing non-participating and annuity product contributions. Despite moderation in new business premiums, LIC’s profitability trajectory and valuation remain compelling. The research house maintains a fair value target of Rs 1,260, offering meaningful upside from current levels. With consistent margin expansion, an improving product mix, and dominant industry positioning, LIC remains a fundamentally attractive long-term play.

Kotak Reiterates BUY on LIC with a Target of Rs 1,250

Kotak Institutional Equities has maintained its BUY recommendation on LIC following a better-than-expected Q4FY25 performance. The research house revised its embedded value (EV) estimate upward by 3%, driven by robust earnings and steady business mix evolution. The fair value is anchored at Rs 1,260 per share, implying substantial headroom from recent trading levels.

Robust Q4FY25 Profit Boosts Investor Confidence

LIC reported a 23% YoY rise in net profit, reaching Rs 13,763 crore for Q4FY25. This uptick was largely driven by improved operating metrics and reduced expenses. The company’s total income stood at Rs 2.41 trillion for the quarter, reflecting its scale and market leadership.

Additionally, the Value of New Business (VNB) rose 4% YoY to Rs 1,610 crore, and VNB margin expanded by 90 bps YoY to 16.6%, showcasing LIC’s evolving product strategy.

Embedded Value Inches Higher; AUM Climbs to Rs 50 Trillion

LIC’s embedded value stood at Rs 6.7 trillion in FY25, up 10% YoY. Growth in surplus and steady VNB margins contributed to this positive revision. Moreover, Assets Under Management (AUM) crossed the Rs 50 trillion mark, underscoring LIC’s unmatched scale and trust in the Indian insurance landscape.

Non-Participating Product Mix Continues to Improve

The contribution of non-par products to individual APE improved to 11.3% in FY25 from 9.3% in FY24. This rise is a clear indication of LIC’s strategic pivot toward margin-accretive offerings such as annuity and protection plans.

Management highlighted increased adoption of guaranteed return annuity products, contributing to enhanced margins and improved capital efficiency.

New Business Premium Growth Shows Mixed Trends

Individual Annualized Premium Equivalent (APE) grew 5% YoY in Q4FY25, marking a recovery from prior sluggish quarters. However, total APE for FY25 rose only 1% YoY, with group business APE declining 2%.

The slower momentum in group business is seen as a short-term fluctuation, with management confident of long-term growth prospects across product segments.

Capital Adequacy and Dividend Stability Highlight Financial Strength

LIC reported a solvency ratio of 1.98x in FY25, comfortably above the regulatory threshold of 1.5x. This strong capital position allows the company to sustain its long-term growth plans and buffer against macroeconomic shocks.

LIC also declared a final dividend of Rs 6 per share, reinforcing its commitment to shareholder returns and income stability.

Digital Transformation and Efficiency Gains Underway

Management continues to emphasize digitization across sales, underwriting, and customer service. This push is aimed at narrowing the operational efficiency gap between LIC and private peers. In FY25, digital contributions to policy issuance and servicing saw material improvement.

The insurer has also expanded its bancassurance footprint, improving accessibility and premium mobilization through new channels.

Valuation Remains Attractive Amid Consistent Re-Rating

Kotak believes LIC trades at 0.6x FY26 EV, offering substantial re-rating potential. Given margin improvements, growing non-par mix, and scale of operations, the current valuation does not fully capture LIC’s intrinsic worth.

Kotak’s base-case fair value estimate stands at Rs 1,250, assuming 0.8x FY26 EV. Upside could be sharper if LIC accelerates margin accretion or scales its digital and non-par business faster.

Key Financial Highlights (Q4FY25)

Here is a snapshot of LIC’s key metrics:

Strategic Outlook and Investment Takeaway

LIC is in the midst of a value-unlocking journey, balancing legacy strength with modern reforms. The insurer’s ability to pivot towards high-margin, capital-efficient products while maintaining dominant market share is a rare combination in the Indian life insurance sector.

Kotak Institutional Equities sees LIC as a compelling investment for long-term investors looking for exposure to India’s financialization and insurance penetration story. With embedded value rising, margins expanding, and a visible re-rating in progress, LIC remains a heavyweight worth owning.

Disclaimer: Investors are advised to conduct their own due diligence before making investment decisions.