Buy This Private Sector General Insurance Stock, Brokerage Sees 30% Upside, Declared Rs 4.50 Interim Dividend

Emkay Global places a buy call on ICICI Lombard General Insurance Company Limited (ICICIGI) for a decent gain of up to 30% with a given target price of Rs 1,470 per share. ICICI Lombard General Insurance Company Limited is one of the leading private-sector general insurance companies in India.

With a market cap of Rs 55,827.31 crore, this is a large-cap general insurance company. The company on 18 October 2022, declared an interim dividend of Rs 4.50/-.

ICICIGI reported a strong beat in PAT at Rs5.91bn for Q2FY23, largely driven by the tax-provision reversal of Rs1.28bn and higher capital gains than our estimate.

Trading at the lower end of its historical valuation multiples, ICICIGI offers an attractive risk-reward, now that topline growth is making a come-back.

Stock Outlook & Returns

The stock of the company, at the time of writing, is trading at Rs 137.10 per share on NSE. The stock's 52 week low level is 1,071 recorded on 13 June 2022 and 52 week high is Rs 1,548.25, recorded on 16 November 2021, respectively.

The stock in terms of return has performed well on long term investments. However, in past years it has given negative returns. In the past 1 month, the stock fell 6.05%, whereas, over the past 1 year, it fell 25.78%. In the past 3 years, it has given 8.77% negative returns. It has given 5715% positive returns in the past 5 years. The stock made its debut on the stock exchange in September 2017.

Satisfactory operating performance with solid growth; tax reversal and capital gains drive the PAT beat

On the operating front, ICICIGI broadly maintained the Q1 trend in Q2 too and delivered GWP growth of ~23% YoY in H1 (Q2FY23: 17% YoY, on a stronger base). The combined ratio for Q2 at 105.1% was slightly worse than our estimated 103.3%, but underwriting result at -Rs1.51bn was in line with our estimates. Tax-provision reversal of Rs1.28bn and higher than our realized capital-gain forecast (Rs1.1bn actuals vs estimate of Rs0.6bn) led to the Rs5.9bn PAT being materially ahead of our estimates.

Robust growth in health and strong profitability in commercial lines offset the Motor OD drag

With a prolonged, ongoing intense price competition, ICICIGI's growth was muted in Motor OD; yet, the claims ratio was poor (higher than that of Motor TP), reflecting the intensity of price competition. In the health segment, growth was considerably resilient, driven by strong banca-led growth on the back of ICICI Bank selling health indemnity attachment and good price development in the employer-employee group health. Retail Agency efforts have started delivering results, with Retail Health agency premium growing 30% YoY. On profitability, Q2 claims ratio of 72.8% and combined ratio of 105.1% were broadly in sync with Q1 ratios of 72.1% and 104.1%, respectively. Adjusting for cyclone & flood related losses, Q2 claims and combined ratio will be almost similar to those in Q1.

Broad-based growth opportunity; profitability outlook satisfactory

Management sounded confident about maintaining the growth momentum, with most segments contributing to growth. The focus on health has started providing outcomes, with retail health seeing growth (albeit on a relatively smaller base), banca Group health showing strong growth with ICICI Bank selling health indemnity attachment and Employer-Employee group health seeing a good price increase. On the profitability front, the experience and outlook is satisfactory across business lines, except for Motor OD, which continues to be faced with intense price competition (although there are some exceptions of player-specific restrained behavior).

Emkay Global reiterate BUY with unchanged Target Price of Rs1,470

To account for the stronger growth in H1, tax reversal of Rs1.28bn, higher realized gains and the slightly higher combined ratio, we tweak our estimates. This results in a ~1-3% PAT rise, ~2% GWP increase and 0.5-0.9ppt combined ratio upswing over FY24-25E. For FY23E, our PAT lifts by ~10%, mainly on account of the tax-provision reversal. "We reiterate our BUY rating on the stock, with unchanged Sep-23E TP of Rs1,470 (implied FY24E PER of 33x)," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Emkay Global. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.