Add ICICI Lombard General Insurance company Ltd Target Rs.1,600 - Emkay Global Financial Services Ltd
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Well on track for FY25 combined ratio guidance
ICICIGI reported better-than-expected operating performance in Q3FY24 with the combined ratio (CoR) of 103.6% coming better than our estimates of 104.3%. PAT at Rs4.3bn was ~11% below our estimates, largely led by i) Lower realized investment gains in the quarter and ii) Higher upfronting of acquisition cost due to strong growth in Motor OD. Overall, the Q3FY24 performance gives much needed comfort around the achievability of 102% combined ratio guidance for FY25. To reflect Q3FY24 performance, we have adjusted our FY24- 26 estimates with FY24 PAT reducing by ~6% (on account of lower realized investment gains), while FY25-26 estimates remain broadly unchanged. We reiterate our ADD rating on the stock with our unchanged Dec-24 TP of Rs1,600 (implying FY25 P/E: 30x).
Good performance for Q3FY24
Q3FY24 performance of ICICIGI came as operationally strong with the claims ratio of 70% (-0.3ppt YoY) and a CoR of 103.6% (-0.9ppt YoY) coming better than our estimates of 71.3% and 104.3%, respectively. PAT grew 21.9% YoY to Rs4.3bn and was ~11% below our estimates on account of lower realized investment gains and higher upfronting of acquisition cost owing to good growth in Motor OD. The lower realized investment gains were a conscious management call and the unrealized investment gains increased to ~Rs12bn in Q3FY24 from Rs9bn in Q2FY24.
Profitable growth strategy reiterated
The new MD and CEO, Sanjeev Mantri, reaffirmed the company’s long-stated strategy of driving profitable growth. With some early signs of improvement in competitive intensity in Motor OD and claims experience in health and commercial lines emerging as per expectations, management is very confident of achieving 102% CoR by FY25. However, management is also very clear about continuing to invest in distribution and technology to achieve growth in its focus area and, hence, is not looking to revise the FY25 CoR guidance downwards. The company maintains its focus on retail health; however, in the quarter gone by, growth has been a bit suboptimal due to deliberate recalibration of the portfolio to react to certain claims development.
Reiterate ADD with broadly unchanged FY25-26 estimates
We have adjusted our estimates to reflect Q3FY24 performance. The lower realized investment gains have led to a ~6% cut in our FY24E PAT/EPS, while the CoR remains unchanged. For FY25-26E, our key estimates including the CoR and PAT remain unchanged. With the key segments of motor, commercial lines, and health delivering profitable growth giving increased confidence about 102% CoR achievability by FY25, we reiterate our ADD rating with our unchanged Dec-24E TP of Rs1,600.
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