ICICI Lombard shares tank 6% after Q3 earnings, Here's why analyst remain divided on the stock

ICICI Lombard General Insurance Company (ICICI Lombard) shares plunged 6 per cent during the early trade on Wednesday after the general insurance player reported a mixed performance in the June 2022 quarter. However, the street gave it a thumbs down as it missed the estimates.

ICICI Lombard reported a 11 per cent rise in the net profit at Rs 353 crore in the third quarter of the ongoing fiscal, compared to a net profit of Rs 318 crore in the same quarter previous fiscal. Its profit before tax rose on similar lines to Rs 465 crore in Q3FY23, against Rs 421 in the year ago period.

The general insurer collected a gross direct premium of Rs 5,493 crore in the quarter under review, reporting a rise of 17 per cent year-on-year (YoY). It reported a 9 per cent increase in underwriting losses in the given period to Rs 293.46 crore.

Domestic analysts remain mixed-to-negative on the counter considering the ongoing structural challenges for the company. However, a few global brokerages have a positive view on the counter.

Kotak Institutional Equities said ICICI Lombard’s performance continues to be marred by high competition in the motor OD segment, leading to slower growth and high claims. Improving claims experience in motor TP, despite a shift to CV and faster growth in retail health, though on a small base, were positive trends in the December quarter. The brokerage has tweaked its estimates, retaining its cautious stance and 'reduce' rating on ICICI Lombard, with a Fair Value of Rs 1,225.

"We expect ICICI Lombard to deliver a medium-term RoE of 18 per cent. While core business growth will likely remain moderate at 15 per cent, with a combined ratio of 103-104 per cent (management guidance of 102%), the higher bond yields should boost investment yields and profitability," it said.

Kotak said it continues to prefer life insurers over non-life companies. The overhang of the large stake sale by ICICI Bank till September 2023 remains, it added.

Combined operating ratio (COR) remained elevated at 104.4 per cent. The claims ratio improved 250 bps on a sequential basis to 70.3 per cent, but commission and expense ratios rose 73 bps QoQ. Investment income moderated 11.9 per cent QoQ to Rs 760 crore, driving a decline in adjusted PAT of 23.7% QoQ to Rs 353 crore, said Nuvama Institutional Equities.

High competitive intensity in the motor segment is driving up COR. We believe Street would be less enthused by management’s guidance This note marks the transfer of coverage, said Nuvama with a 'hold' rating and a target price of Rs 1,280.

While growth in motor has improved, increased competition led to higher risk-taking by management in the CV micro segment. Reinvestment of synergy benefits are further straining the business’s interim RoE profile, said Nuvama.

Better-than-expected loss ratios in motor TP business were offset by continued investments into building the retail health agency business, said HDFC Securities. "Given the strong demand outlook in the underlying autos segment, we argue that the pessimism is overdone and maintain our 'Add' rating, with a target price of Rs 1,280," it said.

Among the global brokerages, CLSA and Jefferies have a buy rating on the stock with a target price of Rs 1,500 and 1,620 respectively.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)
 

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