In past one week, the stock of general insurance company has outperformed the market by gaining 14% after the private equity investor Warburg Pincus on Friday sold nearly three percentage point stake in the company through the open market. In comparison, the S&P BSE Sensex was down 2% during the same period.
On Friday, November 30, Red Bloom Investment Ltd, an entity owned by funds of Warburg Pincus sold a total of 13.27 million shares, representing 3.14% holding in ICICI Lombard at a price of Rs 800 per share, the BSE bulk deal data shows. The name of the buyers not ascertained immediately.
As of 30 September, Warburg Pincus held a 9% stake in ICICI Lombard General Insurance, the shareholding pattern data shows.
ICICI Lombard has two major shareholders. One is ICICI Bank (55.9%) and the other is Fairfax Asia Limited (FAL) (9.9%). According to Mint report, FAL is to sell its 9.9% stake in ICICI Lombard, following its earlier sell down during the IPO (12.2%, Sep 2017).
Analysts at JP Morgan rate ICICI Lombard ‘Neutral’ primarily owing to its premium valuation (7.0x FY19E P/B or 37x P/E) as compared to New India Assurance (OW) which is trading at 1.9x P/B.
“We would not read this potential event negatively as we think it would remove a key overhang for the stock. Also, we do not think that FAL’s potential stock disposal signals that ICICI Lombard’s value is at peak even on a longer-term perspective. Instead, our understanding is that FAL is passionate about India’s insurance market and it is intending to build a platform in India via GoDigit, an online insurance company with larger ownership,” the brokerage firm said in a report dated November 30, 2018.
The better-than-expected underwriting performances consistently maintaining its combined ratio below 100% with further improvement potential; better pricing cycle (or premium hike) in the motor third party (TP) and the retail and the group health insurance; and positive regulatory developments in broad insurance pricing and sales commissions are the upside risks for the stock, the brokerage firm said.
At 11:57 am; ICICI Lombard was trading 2% higher at Rs 906 on the BSE, as compared to a 1% decline in the S&P BSE Sensex. A combined 209,788 equity shares changed hands on the counter on the BSE and NSE so far.