Add ICICI Lombard Ltd for the Target Rs.1,900 by Emkay Global Financial Services Ltd
We met the management of ICICI Lombard (Sanjeev Mantri - CEO and Gopal Balachandran - CFO) to discuss the company’s business strategy and outlook as well as the broader general insurance industry developments. KTAs:
1) Profitability to improve on the back of no more need of Supreme Court Shishu Pal Judgement (read: https://tinyurl.com/ShishuPalJ)-related Motor TP provisions, relatively moderate vector-borne disease incidences so far, and moderating irrationality in commercial lines pricing by competition.
2) No impact expected from Nepal floods, and recent floods in multiple states are typical 2Q events.
3) Regulatory developments such as tightening of commissions and Motor TP tariff hike, as and when these unfold, will be positive for ICICIGI.
4) The company continues to advance its digital and technological capabilities for improving productivity and operational efficiency. (It will be hosting its Digital Day on 29-Sep-26.) Overall, we believe adverse regulatory developments (Shishu Pal Judgement, no Motor TP tariff hike) and market developments (extreme irrational pricing in commercial lines) have played out and expect the FY28 and beyond outlook to be better; also, the NSE IPO would provide a boost to 2QFY26 PAT and fair value gains in the net worth. Post sharp underperformance of ICICIGI shares, valuations have turned favorable; we reiterate ADD on the stock while keeping Sep-27E TP unchanged at Rs1,900.
Profitable growth remains the driving principle
Amid the difficult regulatory and competitive environment, the ICICIGI management continues to stick to a disciplined approach toward acquisition, underwriting, and pricing for driving profitable growth. This is evident from the sustained lower claims and combined ratio of ICICIGI versus product segments across the overall and private industry’s. In 2QFY27, Management sees no impact of the Nepal floods, business-asusual impact of multistate floods in recent months, relatively lesser incidences of vectorborne disease, and no need for extra provision in Motor TP on account of the Shishu Pal Judgement. Over the medium term, the company sees positive impact from any commissions/EoM limit tightening and Motor TP Tariff hike, as and when these unroll.
Profitability likely to have bottomed; reiterate ADD
A confluence of regulatory and market developments, including the Shishu Pal Judgement by the Supreme Court in Jun-26, no Motor TP tariff hike by the regulator in FY27 so far, and extreme pricing irrationality by the competition in commercial lines have affected the profitability of ICICIGI. Ahead, especially in FY28 and beyond, we see a few possible tailwinds to earnings, including a likely Motor TP tariff hike and stricter commission regulation reducing irrationality in a few business segments. From a one-off perspective, the NSE IPO is likely to lead to a positive 2QFY27 PAT impact of ~Rs2.87bn and FairValue gains increasing by ~Rs34.9bn. On the back of the sustained relative underperformance of ICICIGI shares, valuations at Sep-28E PER of ~21x (without accounting for gains from the NSE IPO) have turned favorable. We reiterate ADD with unchanged Sep-27E TP of Rs1,900.
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