Buy ICICI Lombard General Insurance Company For Target Rs 1,245 - Yes Securities
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Result Highlights
* Net premiums earned: Net premiums earned de-grew by -1.7% QoQ, driven lower by Motor, Fire and Crop segments
* Loss ratios: Overall loss ratio has deteriorated by 390 bps QoQ to 74.2%, where Motor TP has significantly evolved negatively QoQ
* Expense control: Expense ratio rose 20bps QoQ to 31.4% where opex fell - 10.1% QoQ and commissions fell by -47.6% QoQ
Our view – Nothing to warrant an upgrade yet
Caution on the Motor segment continued to drag overall premium growth lower: Motor segment de-grew -1.9% QoQ as ICICIGI continued to remain cautious on the segment. Health (including personal accident) grew 0.9% QoQ. The company’s market share in retail health is lower than the average and management intends to raise it. Fire and Marine segments diverged, with Fire de-growing -3.3% QoQ whereas the Marine segment grew 8.2% QoQ.
While Motor OD and Health (incl PA) loss ratios evolved positively, the benefit was more than offset by Motor TP and other segments: Motor OD loss and Health (incl PA) loss ratios improved 360 bps and 270 bps, respectively, QoQ, to 69.4% and 75.5%, respectively. Motor TP loss ratio spiked 2460 bps QoQ to 86.5%. Despite reinsurance rates hardening, the company sticks to its guidance of bringing down combined ratio to 102% in 2 years. As per management, while commercial lines may not have been as profitable as in the past, the company has taken some calls and is confident of the glide path. Secondly, as the investments in the health segment mature, the productivity would rise. Thirdly, the incremental relationships garnered from the Bharti Axa deal are coming in at a good CoR.
We maintain ADD rating on ICICIGI with a revised price target of Rs 1245: We value ICICIGI at 28x FY24 P/E for an FY22-25E EPS CAGR of 25%. At our target, the implied FY24E P/B is 5.3x whereas the FY24/25E RoE profile is 19.1/19.3%.
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