Mumbai: Life Insurance Corp of India (LIC)’s high cost structure, potential service gaps and declining market share in individual business are barriers the listed public sector behemoth needs to hurdle, although it enjoys public trust and scale private-sector rivals will struggle to match.

Despite a 6% rise on Monday, the company’s stock price remains 30% below its IPO issue price of ₹949. Analysts said structural limitations of the company will force investors to discount its market share. “They have many fixed high costs and are finding it difficult to hold on to market share. It is unlikely that LIC will match its private sector peers in valuations like new business margins, which will continue to weigh on their valuations,” said Manish Ostwal, senior equity analyst, Nirmal Bang Securities.

Results published Friday showed that LIC’s net profit in the second quarter swelled in comparison with last year following funds transfer to shareholders’ accounts. A total of ₹15.03 lakh crore was transferred to shareholders’ account at the end of September. As a result, net profit increased to ₹15,952 crore from ₹1,434 crore in the same quarter last year.

Analysts point out that LIC’s embedded value (EV) remains flat because the enhanced value reflects largely marked-to-market gains from its large investments in stocks.

EV is a measure of future cash flows in life insurance companies and the key financial gauge for insurers. Insurers are valued as a multiple of their embedded value.

Macquarie analyst Suresh Ganapathy said LIC’s EV has remained flat at ₹5.40 lakh crore in the first half of fiscal 2022 despite LIC generating new business of ₹10,000 crore during that period.

“There is nothing to cheer about this ‘accounting profits’ in our view…and all that record market share and No 1 slot is all driven by group business. In individual businesses, they continue to lose market share and growth has been tepid,” Ganapathy said. “The overall VNB (value of new business) margin increase is also largely driven by higher group margins which the management says is driven by higher share of annuities and change in risk-free rate assumptions.”

LIC’s distribution clout and brand recall are major plus points for the insurance behemoth to improve its VNB.

“The value of new business growth will be very high for LIC…driven by increase in non-par mix, and gradual increase in surplus distribution toward shareholders. We have seen that product-mix-driven increase in VNB margin is a fairly straightforward objective as seen from industry peers,” ICICI Securities said in a note before the release of the earnings.

“Scale is evident from the low cost ratios. Trust in brand is evidenced from the 275 million in-force policies in the individual segment being serviced in India as at FY22,” ICICI Securities said. “Additionally, about 75% of individual policies sold by LIC in H1FY22 were to new customers. Product mix is dominated by participating life insurance policies, which creates low balance sheet risk and lower capital requirements.”