ICICI Lombard General Insurance Company - Cyclical recovery can protract; fundamentals remain intact - ICICI Securities

We expect ICICI Lombard's (ICICIGI) health product / channel mix to be reoriented as its principal bancassurance partner (ICICI Bank) reduces it focus on sale of credit-linked attachment products. Near-term challenges for ICICIGI include: 1) sustained competitive intensity and higher claims in motor OD, and 2) delay in motor TP price hike. However, with emphasis on retail sales, new partnerships and new products amid strong demand and favourable base, we expect ICICIGI's health segment growth to recover in FY22E/FY23E. Revival of premium growth in motor segment and possible price hikes in motor TP remain positive triggers. Maintain ADD with a target price of Rs1,584, implying 37x FY22E EPS of ~Rs42.4.

- Rs15bn PAT in FY21 was in-line; we expect Rs19.3bn PAT in FY23E. We estimate Rs19.3bn PAT in FY23E on the back of: 1) the 11.6% / 8.1% NEP growth in FY22E / FY23E, 2) 71% / 72.8% loss ratio in FY22 / FY23E, 3) 29.6% / 26.8% opex ratio (commission plus expenses) in FY22E / FY23E, and 4) Rs24.6bn / Rs29.4bn investment income in FY22E / FY23E.

- Covid / Non-Covid health, lower frequency / higher severity in motor claims, and recovery in motor segment growth will determine FY22 profitability. Lower motor claims (Rs39bn in FY21 vs Rs47bn in FY20) and moderate rise in health claims (Rs17bn in FY21 vs Rs15.8bn in FY20) were positive for ICICIGI in FY21 despite lower NEP growth (+6.5%). Motor / Health loss ratios stood at 66% / 77% in FY21 vs 77% / 70% in FY20. It remains to be seen how the combination plays out again in FY22 with possible demand recovery in motor and higher pricing as the likely positive triggers. ICICIGI received total covid claims of Rs3.76bn in FY21 (2.6% of total industry claims).

- Strong execution & robust balance sheet can be long-term tailwinds. ICICIGI has managed strong organic expansion with the number of agents increasing from 35,729 in FY19 to 59,545 in FY21 and virtual offices from 135 in FY18 to 840 in Q4FY21. Company has also embarked on inorganic growth with the acquisition of Bharti Axa, which had 1.6% GDPI market share in FY21. It also acquired AutoNinja (CRM software for auto dealers) in Nov'19, which has helped renewal rate in motor insurance). 'IL Take Care' app for customer engagement & servicing of health, motor and travel customer saw more than 500K+ downloads till FY21 (450K+ downloads in FY21) The superior execution track record will be further aided by strong balance sheet with solvency of 2.9x as of FY21 and an AUM including fair value change amount of Rs308bn (equity exposure stood at ~12.5% in FY21; up from 9.8% in Q1FY21, 10.2% in H1FY21 and 10.9% in 9MFY21).

- Second Covid wave can delay cyclical recovery; maintain ADD. We had expected a cyclical recovery in FY22E for well-entrenched general insurers like ICICIGI, but the second wave of Covid can cause delay. However, a market leader like ICICIGI is well placed to cope with it. We maintain ADD on the stock with a target price of Rs1,584, implying 37x FY22E EPS of ~Rs42.4

Shares of ICICI Lombard General Insurance Company Ltd was last trading in BSE at Rs.1423 as compared to the previous close of Rs. 1388.05. The total number of shares traded during the day was 18587 in over 2015 trades.

The stock hit an intraday high of Rs. 1426.95 and intraday low of 1385. The net turnover during the day was Rs. 26237334.

Source : Equity Bulls

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