Shares of Life Insurance Corporation of India (LIC) rose more than 3% on Aug. 16 after Macquarie Capital Securities analyst Suresh Ganapathy upgraded the stock after its June quarter earnings.

Macquarie upgraded the stock to ‘outperform’ from ‘neutral,’ citing the stock’s cheap valuation as a catalyst for the upgrade. However, the brokerage sees less upside for the stock than before as it cut its target price by 15% to Rs 850 to take into account the valuation discount due to the company’s government ownership.

Brokerage Macquarie said the life insurance giant’s enhanced disclosures in 2021-22 would also help revise the value of the new business (VNB) and its embedded value forecast. The embedded value represents the company value of a life insurance company, which is important for understanding what shareholders will gain after the company is sold.

LIC’s June quarter results were disappointing, with net profit down 71.2% quarter-on-quarter to Rs 2,371.6 crore, while standalone gross premiums contracted 31.6% to Rs 98,351.8 crore.

The company’s market share in first-year premiums was 65.42% at the end of the June quarter, down from 67.52% a year earlier. The country’s largest life insurer’s new business margin fell to 13.6% from 15.1% in March. LIC hinted that the change in product mix during the quarter was the main reason for the sequential decline in VNB’s margins.

The value of a new business is a key measure of profitability and represents the additional revenue generated from the sale of policies over a given period.

LIC chairman MR Kumar told analysts on a post-earnings conference call that the decline in new business margins in the June quarter was ‘temporary’ and that the value of new business margins will increase once life insurers add high-margin stock protection plans.

Shares of LIC were up 3% at Rs 703 on the NSE at 11.26 am. Shares of LIC have fallen 25% since listing in May, despite an 8% rebound since hitting a 52-week low of Rs 650 on June 20.