Stock To Buy: This Large Cap Insurance Stock Likely To Surge 24%, Record Date Fixed For 50% Dividend

Motilal Oswal, a leading brokerage firm has recently published a report on ICICI Lombard General Insurance Company Limited (ICICI Lombard) where the brokerage recommends a 'buy' shares of the company for a target price of Rs 1500 per share. ICICI Lombard is a large cap insurance sector stock with a market capitalization of Rs 59,384.80 Crore.

Stock Outlook, Returns, potential Gains & Dividend

ICICI Lombard's stock today closed at Rs 1,216.85 per share after a sharp 4.22% fall in price. It was opened at Rs 1,281.95 per share. The 52-week low of the stock is Rs 1,071 per share, while the 52 week high is Rs 1,675 per share. The stock's CMP is Rs 145.85 above its 52-week low level and Rs 458.15 below its 52-week high level.

Returns- The stock in the last 1 month has moved up 7.3%, and last 1 week declined 1.87%. Whereas in past 1 year, its share declined 18.16%, and in the past 3 years, its share gained 11.11, respectively.

Potential Gains - According to the brokerage's estimated target price of Rs 1,500 per share, and the CMP of the stock, the stock has the potential to gain 24% around in 12 months.

Dividend - The company has declared a final dividend of Rs 5 per equity share (50%) for the year ending March 2022. The company fixed the record date for the dividend on 29 July 2022. The dividend was declared on 21st April 2022.

High URR creation and lower investment income impacts performance

ICICI Lombard's net underwriting loss stood at Rs 1.9b in 1QFY23 v/s Rs 3b in 4QFY22, led by a 14% QoQ decline in total income to Rs 39.8b (lower other income due to lesser capital gains), with total expenses growing by 1% to Rs 36.6b. PAT grew 12% QoQ and 80% YoY to Rs 3.5b. Claims ratio marginally increased to 72.1% v/s 72% in 1QFY23 as the benefits of a lower loss ratio in Health and Motor Target Price was offset by higher claims in Fire and Motor OD. Claims ratio contracted by 1,736bp YoY. The combined ratio stood at 104.1% v/s 123.5%/103% in 1Q/4QFY22. The solvency ratio stood at 2.6x v/s 2.5x in 4QFY22.

Strong growth in GWP, higher URR lead to lower NEP

Total GWP grew 30% YoY and 11% QoQ to Rs 55.6b. However, NEP saw muted growth (up 10% YoY and 5% QoQ) to Rs 34.7b, with NEP-to-GWP ratio at 63% v/s 74% in 1QFY22. NEP for the Health/Motor business saw decent growth (up 9%/6% QoQ), whereas the Fire business declined by 19% over the same period. Investment income stood at Rs 5.1b, denoted by a decline of 25% YoY and 61% QoQ. This was on the back of fall in capital gains to Rs 0.3b from Rs 3.7b/ Rs 1b in 1Q/4QFY22.

Loss ratio steady QoQ, higher expense ratio elevates combined ratio

ICICI Lombard reported a loss ratio of 72.1% in 1QFY23 v/s 72% in 4QFY22. The benefit of a lower loss ratio in Health/Motor TP (down 290bp/440bp) was offset by higher claims in Fire/Motor OD (up 27.5%/70bp). Claims ratio contracted by 1,736bp YoY. Commission ratios dipped by 180bp QoQ to 2.2% owing to a higher share of the Group business and better Reinsurance commissions. Expense ratio grew to 29.9% from 27.1% QoQ, led by a 33% QoQ increase in employee costs, and investments in the Health distribution channel and on technology.

Highlights from the management commentary

ICICI Lombard's PV/2W market share stood at 14%/64%. It saw a YoY decline in market share for new vehicles on account of a calibrated business strategy, but managed to gain market share in CVs, with the same for 2W stabilizing. With improving productivity of newly hired Retail Health agents, growth is expected to remain strong for the segment in 2QFY23. The management expects the combined ratio to trend downwards. However, the same is not expected to fall below 100% in FY23.

Marginally trim our FY23/FY24 earnings estimate; maintain Buy

Motilal Oswal said, "We expect strong premium growth for ICICI Lombard, led by strength in new Auto sales, investments in the Health distribution channel, and expected results from past investments in technology. Earnings growth will accrue from synergies from its merger with BAXA and improvement in the loss ratios for the Health segment. We cut our FY23/FY24 earnings estimate by 4%/2%, led by lower investment income. The Increase in loss ratio estimates is offset by higher premium growth assumptions. During FY22-24, we see the company delivering a premium/PAT CAGR of 19%/27% and a RoE of 18.8% in FY24. We maintain our Buy rating with a one-year Target Price of Rs 1,500 (35x FY24E P/E)."

Company Overview- ICICI Lombard General Insurance Company Ltd.

ICICI Lombard General Insurance Company Limited is a large cap private-sector non-life insurer in India. The company offers a comprehensive and well-diversified range of products including motor insurance health insurance personal accident insurance crop insurance fire insurance marine insurance and engineering and liability insurance through multiple distribution channels. The key distribution channels of the company include individual agents, direct sales, bank partners, other corporate agents, brokers and online through which the company serves its individual corporate and government customers. 

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.