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BRIEF SUMMARY OF SHAREKHAN’S RESEARCH REPORT ON ICICI LOMBARD SHARE
ICICI Lombard share reported Gross Direct Premium Income (GDPI) of Rs. 4,699 crores, an increase of 16% y-o-y.
Net premium earned stood at Rs. 3,312 crores, up 27% y-o-y and 2% q-o-q.
From 8th September 2021, the merger of Bharti Axa was effective.
Sharekhan had estimated a profit after tax of ₹ 442 Cr while the actual result was ₹ 318 Cr which resulted in a decline of 29% QoQ (up 1% YoY).
The sequential decline is on account of higher underwriting loss even as net premium earned witnessed an increase of 2% q-o-q.
ICICI Lombard share reported an operating loss of ₹ 20 Cr in the retail health segment.
The company reported an operating profit of ₹ 57 Cr and ₹ 47 Cr in the group health and corporate segments.
Operating profit of motor insurance stood at Rs. 29 crores versus Rs. 333 crores in Q2FY2022.
Incurred claims ratio was steady at 69.6% versus 69.8% in Q2FY2022.
KEY POSITIVES
Claims ratio was steady at 69.6% in Q3FY2022.
There is a downtrend for COVID-19 claims which stood at ₹ 529 Cr in 9MFY2022.
KEY NEGATIVES
There was a rise in the operating losses from the retail segment which was ₹ 20 Cr in Q3FY2022.
In Q3 FY2022, there was still a loss in motor insurance industry.
MANAGEMENT COMMENTARY
There is a keen focus by the management on retail health policies and is aspiring to grow the segment by increasing appropriate network and technology.
ICICI Lombard share is planning to increase its network in tier-3 and tier-4 cities.
With the merger of Bharti Axa, management intends to see synergy benefits from H2FY2023.
SHAREKHAN’S CALL VALUATION
Sharekhan expects ICICI Lombard share to deliver on profitability going ahead as the company is in a leadership position in gross written premium through focus on profitable product lines (retail health and motor insurance).
Sharekhan believes business momentum may pick-up in H2FY2022 for the consolidated entity as Bharti Axa’s product profile would get aligned with ICICI Lombard share, aided by improved operating efficiencies and as the industry’s volumes pick up.
At the current price, ICICI Lombard share trades at 47.9x/32x its FY2022E/FY2023E EPS.
Sharekhan maintains a Buy rating on ICICI Lombard share with a price target (PT) of Rs. 1,750.
KEY RISKS
Business disruptions and impact on GDPI growth due to COVID-19, adverse regulatory policies/guidelines, and aggressive risk pricing by peers may impact ICICI Lombard share’s profitability and growth.
Key result highlights from Concall Operating performance:
The sequential decline is on account of higher underwriting loss even as net premium earned witnessed an increase of 2% q-o-q.
It reported a combined ratio of 104.5% in Q3FY2022 owing to higher opex ratio.
Motor insurance reported an underwriting loss of Rs. 388 crores on account of broad-based industry under performance.
Outlook and Valuation with Sector outlook
Sharekhan believes the Indian insurance sector have a huge growth potential.
Significant under penetration, formalization of the economy, rising awareness for financial protection (accelerated by the pandemic), large protection gap, and expanding per capita income, among others, are key long-term growth drivers for the sector.
In this backdrop, Sharekhan believes strong players such as ILGI, armed with the right mix of products, services, and distribution network, are likely to gain disproportionally from the opportunity.
Company outlook – Strong fundamentals, attractive over the long term ICICI Lombard share’s long-term business fundamentals have remained steady even during times of crisis.
Sharekhan believes the company is seeing higher demand for health products (due to increased fear factor because of the pandemic), which resulted in better recovery traction for the company.
ICICI Lombard share has also been able to maintain an attractive loss ratio with attractive metrics, which indicates its strong fundamentals.
However, in the near term, ratios may not look attractive.
Positive regulatory environment, focus on higher-margin business, scale-driven operating cost benefit potential, and increasing retail focus (better pricing) make ICICI Lombard share an attractive franchise for the long term.
VALUATION
Sharekhan maintains a buy rating with a target price of ₹ 1,750.
Sharekhan expect ICICI Lombard share to deliver on profitability going ahead as the company is in a leadership position in gross written premium through focus on profitable product lines (retail health and motor insurance).
Sharekhan believes business momentum may pick-up in H2FY2022 for the consolidated entity as Bharti Axa’s product profile would get aligned with ICICI Lombard share, aided by improved operating efficiencies and as the industry’s volumes pick up.
At the current price, ICICI Lombard share trades at 47.9x/32x its FY2022E/FY2023E EPS.
Disclaimer
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