ICICI Lombard General Insurance Company Ltd - IPO Note - Angel Broking

ICICI Lombard is the largest non-life private sector insurer in India. It is a JV between ICICI Bank and Fairfax Financial Holdings Ltd of Canada. Backed by strong parentage, and under penetration of non-life insurance business in India, the company has been on a strong growth path with its Gross Direct Premium Income growing by 26.7% over FY2015-17.

Leadership position among private general insurers: ICICI Lombard has retained its leadership position among the private non-life insurance players since 2004 and has been gaining market share. In FY2017, it had a market share of 8.4% among all non-life insurance companies and 18% among the private sector nonlife insurance companies. The leadership position of the company can be attributed to the fact that it is one of the most efficient in terms of claim settlement ratios.

Higher share of business from the low loss ratio segments should improve profitability: Motor Insurance forms the largest part of the business (42.3%) for the company followed by health and personal accident segments (18.8%). However, over the last two years the share of other segments like crop/ weather insurance has gone up, which has a relatively lower loss ratio. Increasing share of business from the low loss ratio segments will be a positive trigger for the company.

Growth driven by strong parentage & wide distribution network: ICICI Lombard operates through 51 corporate agents, including ICICI Bank (its promoter), which gives the company an access to their 4,850 branches. Moreover, it has a network of 20,775 individual agents. With large distribution network in place, we believe the company would continue to gain market share in the years to come.

High solvency ratio leads to better bottom-line with strong RoE: The Company has a strong capital base with a solvency ratio of 2.1x (FY2017) as compared to IRDA prescribed minimum of 1.5x. The company's net premium income has grown at a CAGR of 11.3% over FY2013-17, while its PAT has grown by 16.1% over the same period, which is a testimony to its improving efficiency and as a result its RoE has also improved to 17.2% by FY17 from 15.6% in FY2015.

Outlook & Valuation: At the upper price band of Rs. 661 the issue is offered at 8x its FY2017 BV. While on the reported numbers it might appear to be fairly valued, we believe with strong potential to deliver high double digit growth for next multiple years, the issue looks decently priced, and hence we have a SUBSCRIBE rating on the issue.

Source : Equity Bulls

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