Buy ICICI Lombard General Insurance Ltd For Target Rs. 2,250 By JM Financial Services
Strong result, growth remains the concern
ICICI Lombard (ICICIGI) reported strong results with a PAT of INR 7.5bn, +25% JMFe. Claims Ratio came in line with JMFe at 73.0% (a 100bps YoY improvement); even as commercial lines of fire and engineering saw elevated claims. Combined Ratio (COR) was reported at 102.9%. Adjusting for 1/n norms, COR improved 10bps on a like-to-like basis to 102.2%. Against 0.6% reported GDPI growth in 1Q, like-to-like growth came in at 5% while Net Earned Premiums (NEP) growth remained robust at 14%. However, as the year progresses, we expect NEP growth to taper down as a result of weak GDPI growth since 2HFY25. Questions on growth pickup remain as the management remains cautious in commercial lines of business while optimistic on motor TP, at this time. Even in health, while retail portfolio grew 37%, group contracted 5% YoY. We maintain our FY26/FY27e growth estimates in net earned premiums at 12%/15%, with Combined Ratio gradually improving to 102.0%. With the strong investment performance, we raise FY26/FY27e EPS by 3%/1%, value the company at 34x (against 32x earlier) FY27e EPS of INR 67 (unchanged) to raise our Target Price to INR 2,250 (from INR 2,150). We maintain BUY.
* Growth the key concern, especially in commercial lines: While like-to-like GDPI growth of 4.8% looked better than 0.6% reported, it was substantially below industry (8.8% reported, 12.8% like-to-like). The insurer struggled to grow in commercial lines – management attributed it to pricing pressure as EOM deadlines loom on peers. Retail health was the bright spot with an elevated 37% growth. In motor, the company grew 10%/7% in cars/two-wheelers but saw GDPI contract 17% YoY in Commercial vehicles (CVs). With motor segment COR for industry at elevated levels, management expressed optimism on price hike in motor TP, which can revive growth in CV segment.
* COR and investment performance pristine: Claims Ratio came in line with JMFe at 73.0% (a 100bps YoY improvement), even as commercial lines of fire and engineering saw elevated claims. While Combined Ratio (COR) was reported at 102.9%, adjusting for 1/n norms, COR improved 10bps on a like-to-like basis to 102.2% - underlying the company’s focus on profitability. With booked investment yields at 9.3% in 1QFY26, against 7.2% JMFe and 6.5% in 4QFY25, investment income surprised positively at INR 12.6bn, +30% JMFe. This led to a strong 25% beat on JMFe and 27% beat on consensus estimates.
* Valuation and view: At CMP, the stock trades at valuations of 35/30x FY26e/FY27e EPS, par for 14%/16% EPS growth with 18%+ RoEs. As we look to FY27e, we expect EPS estimates to be revised upwards as the company starts discussing IFRS numbers. We maintain our FY26/FY27e growth estimates in net earned premiums at 12%/15%, with Combined Ratio gradually improving to 102.0%. With the strong investment performance, we raise FY26/FY27e EPS by 3%/1%, value the company at 34x (against 32x earlier) FY27e EPS of INR 67 (unchanged) to raise our Target Price to INR 2,250 (from INR 2,150). We maintain BUY.
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SEBI Registration Number is INM000010361
