ICICI Lombard 4QFY21 Result Review - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

ICICIGI reported an NEP print 6% ahead of our estimates. While FY22E growth in top-line expected to return in FY22E (low base impact), ICICIGI is expected to witness higher CORs as a result of resurgence in Covid cases amidst the second wave, and increased motor traffic vs. 1HFY21. Additionally, new motor regulations are expected to drive down both claims and tariffs, creating supernormal profitability in the short term. We expect a motor TP price hike in FY22E to be a positive catalyst for growth. Given the uncertainties going ahead and punchy valuations; we rate ICICIGI a REDUCE with a revised target price of INR1,250 (DDM derived Mar-23E P/E of 27.4x and a P/ABV of 5.0x).

4QFY21 highlights: Company printed NEP 5.6% ahead of estimates at INR 26.2bn (11.5/0.2% YoY/QoQ), driven by strong growth in fire and health segments. As a result of recent SC judgments awarding higher average claims, the company has conservatively increased provisioning on the motor TP portfolio (loss ratio at 81.3%, +280/1,580bps YoY/QoQ). Loss ratio for health segment deteriorated 530bps sequentially to 79.9% as ICICIGI saw higher number of Covid claims. Management stated that non-COVID claims have come down in the first 15 days of 1QFY22. Loss ratios were down for P&C segments as some parts of the country witnessed curfews/partial lockdowns in Mar-21. Overall, 4QFY21 CoR (calculated) was at 102.6% (+151/+401bps YoY/QoQ), as higher claims ratio was partially offset by lower commission ratio and expense ratios. The company has grown motor OD business selectively as a result of aggressive pricing in the industry. Investment yield (including unrealised MTM) was 8.4% (+955/-483bps YoY/QoQ). ICICIGI posted an APAT of INR3.5bn +24.1/10.3% YoY/QoQ.

Outlook: While the second wave of Covid has resulted in uncertainties ahead, we expect NEP growth to return in FY22E on the back of lower restrictions compared to 1HFY21. However, we expect overall loss ratios to go up given the resurgence in Covid claims and increased motor traffic, resulting in higher CoRs for FY22E and FY23E.

Shares of ICICI Lombard General Insurance Company Ltd was last trading in BSE at Rs.1364 as compared to the previous close of Rs. 1416.95. The total number of shares traded during the day was 26651 in over 3280 trades.

The stock hit an intraday high of Rs. 1420 and intraday low of 1335. The net turnover during the day was Rs. 36286582.

Source : Equity Bulls

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