ICICI Lombard rating – Buy: Higher commissions impacted earnings

By: |
January 23, 2021 2:30 AM

Normalisation of tie-up with IBank on health side is key; standalone EPS cut by 2-4% and TP reduced to Rs 1,780; ‘Buy’ retained

Combined ratio was at 97.9% and investment income (total) was up 33% y-o-y.Combined ratio was at 97.9% and investment income (total) was up 33% y-o-y.

For Q3FY21, ILOM’s profit of Rs 3.1 bn, up 7% y-o-y, fell short of estimates due to higher commissions. This reflects uptick in premiums & lower re-insurance – while GDPI rose by 9%, NWP rose 21% – benefit of this will play out in the future. IBank has temporarily slowed cross-sell of health-insurance & normalisation will be key. Expansion of agency force & new banca tie-ups can help. We trim estimates a bit, but stay with Buy call with target price of Rs 1,780.

Higher commission costs for premium-growth & lower health business drag profit: During Q3, ICICI Lombard saw some uptick in GDPI growth to 9% and net premium written growth improved to 21% y-o-y. This was driven by growth in retail business, lower reinsurance especially due to lower health-insurance business origination by ICICI Bank. The upfront cost of commission rose by 191% y-o-y–towards new business and lower commission on reinsurance offered on health-business. This was the key reason for miss in earnings. Combined ratio was at 97.9% and investment income (total) was up 33% y-o-y.

Drivers of growth for FY22-23: We believe that ICICI Lombard’s organic growth in FY22 would be led by normalisation of business activity as well as ramp-up of partnerships with banks like Standard Chartered, Yes Bank, Karur Vysya Bank along with a few NBFCs/ SFBs. Still normalisation of bancassurance partnership with ICICI Bank on health-benefit side is key – we expect it to play out by H2FY22. Growth in retail health insurance business will be driven by (i) expansion in agency force – up 17% since Mar-20; and (ii) roll-out of products and tech-platforms towards this segment. Its growth in SME segment also continues to hold-up – up 36% y-o-y in Q3. A key positive development can be hike in motor TP insurance premiums (by IRDAI) after nil hike in FY21.

Trim earnings: Mgmt clarified that the merger with Bharti Axa is moving in line with expectations, and we understand it might be consummated by H12021. We trim standalone EPS forecasts by 2-4% factoring in tad slower premium. This also drives small cut to TP to Rs 1,780 (from Rs 1,850) based on 44x Dec-22 PE.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Bitcoin is a bubble for now over 80% fund managers globally despite price pullback: Bank of America survey
2Sebi issues new guidelines for running account settlement
3Sensex, Nifty snap 3-day record closing spree ahead of FOMC outcome; what analysts’ make of today’s trade