ICICI Lombard rating: Buy — Poised to tap industry’s growth prospects

By: |
September 15, 2020 4:30 AM

Pick-up in motor segment is better than expected; health can be key growth driver; coverage assumed with Buy and TP of Rs 1,570

17% CAGR in profit over FY20-23: Two key drivers of growth will be health insurance & normalisation in motor-business.

We assume coverage on ICICI Lombard GI (ILOM) with a Buy rating & price target of Rs 1,570 as we see it as a key beneficiary of rising penetration that is one-fourth of global. Scope for doubling of health insurance and normalisation of motor business to anchor growth & share gains from PSUs; driving 14% FY20-23 CAGR in premiums & 17% in PAT.  Bharti-Axa was expensive purchase but non-cash & offers synergies over 18-24 months.

Long runway for growth: India’s non-life insurance market is under-penetrated with premium/GDP ratio of 0.9% at one-fourth of global level of 3.8%. In fact, globally (even developed markets) are still seeing rise in penetration. Growth has held up despite Covid. GDP growth, rising penetration & new products will aid 12% CAGR in premium over FY20-23. Private insurers to gain share (15% CAGR) from PSUs (7% CAGR) as they leverage latter’s under-capitalisation & need to improve profits.

ICICI Lombard – tactful at capitalising opportunity: ICICI Lombard has a 7% share in premium and has been tactful at balancing growth with profitability. Innovations, network expansion & gain from PSUs have helped. Moreover, better underwriting (lower share in calamity claims), ability to tap opportunities (fire insurance), willingness to withdraw from risky-segments (crop/mass-health) and investment in digital platforms have helped to deliver better profitability.

17% CAGR in profit over FY20-23: Two key drivers of growth will be health insurance & normalisation in motor-business. Health insurance can emerge as key growth driver in post Covid-era — penetration can rise and we see market doubling in 5 years. In motor, pick-up has been better than expected. We see scope for Combined Ratio to fall to 98% that will compensate for lower investment income.

Downside and upside: Risks to downside can arise if regulator opens up the health insurance business equally to life insurers (proposal put up). Sharper fall in interest rates/default in fixed-rate investments – so far, zero-default — can be risks. Upside can arise from proper rollout of changes in motor-third-party laws by states – limiting period for claims to 6 months vs. no limit now. This can reduce overall Loss Ratio by 9% points and lift earnings by 8% of annualised PAT, but partly will be passed on as price-cuts.

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
1Sebi extends relaxations for compliance with rights issues
2IRFC IPO subscribed 1.22 times on 2nd day
3Investor wealth zooms Rs 3.41 lakh crore as markets witness massive buying