ICICI Lombard General Insurance stock falls as Q4 show disappoints

Analysts though appear positive with their target prices indicating 22-25% upside

Disappointing results have led to a sell-off in ICICI Lombard General Insurance but the sector analysts seem to think there may be a case for buying. The insurer reported a 10 per cent year-on-year (YoY) decline in profit after tax (PAT) at Rs 313 crore for Q4, 2021-22 versus a PAT of Rs 346 crore in Q4, 2020-21. The street consensus expectation had been PAT of around Rs 345 crore, which led to a selloff.  

The gross direct premium income (GDPI) stood at Rs 4,666 crore compared to Rs 3,478 crore YoY.  The key solvency ratio was 2.46 times, slightly better than 2.45x in Q3, 2021-22 and lower YoY than 2.90x in Q4, 2020-21. PAT for the fiscal was at Rs 1,271 crore, which was down 14 per cent from PAT of Rs 1,473 crore in 2020-21.

The management guidance was as follows – the company will invest for future growth even if this temporarily depressed return on equity (RoE), there is an increasing Commercial Vehicle component in the motor insurance segment.

The reductions in profit may have come from the need to protect market share versus competition. It is prepared to sustain higher loss ratios (paid claims versus premiums) to keep market share.

Segment-wise, the sequential deterioration of loss ratios was in Motor and Crop and overall RoE declined quarter-on-quarter to 14 per cent from 14.6 per cent in Q3, 2021-22 and it was down 4.3 per cent YoY.

The company is cutting its exposure in the crop segment going by the lower premium collections.

Sequentially compared to Q3, the Expense Ratio and the Combined Ratio (Loss ratio plus expense ratio) have declined. However both these ratios are up marginally, YoY. This is mainly due to lower employee costs. Going forward, there could be a cyclical recovery in the motor segment as new car registrations are expected to recover once the semiconductor supply chain issues ease. There’s a thrust into the health segment and some apparent synergy from acquisition of Bharti Axa. The highest premium growth was in health and marine insurance.

The company has grown more or less in line with the industry. There’s been acceleration in March 2022, when it outpaced the competition. It’s added over 8,000 agents in the last quarter. The share of losses in the last fiscal was badly affected by exposure to Cyclone Tauktae in May 2021. Motor and Health had net losses of Rs 418 crore and Rs 88 crore, respectively.

The stock is up 5 per cent in the last month but it suffered a loss of 6 per cent after the results on Thursday evening. It is down 4.5 per cent in the last 12 months. At Friday’s closing price of Rs 1,318, it’s trading at a current PE of 50x. One analysis sees an EPS CAGR of 17 per cent in the next three years while another estimates 2023-24 full year EPS growth at around 23 per cent. One brokerage has a fair value target of Rs 1,650 while another has a target of Rs 1,612.