Add ICICI Lombard General Insurance Company Ltd For Target Rs. 1,475 - Yes Securities
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Sustainable RoE declines, Downgrade to ADD
Result Highlights
* Net premiums earned: Net premiums earned de-grew by -1.2% QoQ, driven lower by Fire and Crop segments and a sluggish Motor segment
* Loss ratios: Overall loss ratio has improved by 250 bps QoQ to 70.3%, where Motor OD, Motor TP and Health, Travel & PA have evolved positively QoQ
* Expense control: Expense ratio rose 330bps QoQ at 31.2% where opex rose 16.6% QoQ and commissions rose by 36% QoQ
Our view – Sustainable RoE declines, Downgrade to ADD
Sluggishness in the Motor segment was driven by ICICIGI focusing on the profitable sub-segments within the space: Motor segment grew 4.7% YoY within which, Motor TP has grown 10.1% YoY whereas, Motor OD has de-grown -0.9% YoY. The Motor segment growth is sluggish since ICICIGI continues to focus on profitable segments within the space. The market remains competitive in the private car space whereas, 2W and CV are relatively more profitable. The overall combined ratio of the motor industry is 124% and, while the company did not anticipate this competitive intensity, it did not make sense for it to pursue such business at this point in time.
The Health segment was a relatively bright spot, with various sub-segments displaying promising outcomes and outlook: Overall health segment growth was 47.9% YoY compared with 24.9% for the industry. The retail health agency segment grew 40.1% YoY as the agents recruited earlier have started to deliver. Management opined that 40% growth in retail health agency is sustainable. Group health is also growing faster than the industry and the banca channel is contributing well. ICICI Bank distribution grew 30.9% YoY whereas non-ICICI distribution grew 44.2% YoY. Group health has been largely driven by credit growth and a bit by wallet increase but growth may slow somewhat from a high base.
We downgrade ICICIGI from BUY to an ADD rating with a revised price target of Rs 1475: We value ICICIGI at 32x FY24 P/E for an FY22-25E EPS CAGR of 29%. At our target, the implied FY24E P/B is 5.9x whereas the FY23/24/25E RoE profile is 18.0/18.3/18.9%.
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