EUR 200.00 For Business Accounts Only

MOSL:ICICI LOMBARD | INITIATING COVERAGE: Successfully weathering the storm (ICICIGI IN, Mkt Cap USD7.9b, CMP INR1277, TP INR1500, 17% Upside, Buy)

The general insurance industry is all set to deliver a healthy 12% CAGR in premium over the next decade led by 1) healthy trend in auto sales, 2) sustained strong momentum in health insurance demand and 3) commercial insurance lines growing in line with a robust economic growth. Amidst this, ICICIGI has emerged to be India’s largest private sector general insurance company post its merger with Bharti Axa (BAXA). Stronger correlation with new auto sales, investments into health distribution channel, synergies from BAXA merger and expected results of past investments in technology are the key earnings triggers for ICICIGI. During FY22-24, we see the company delivering a premium/PAT CAGR of 19%/28% and a RoE of 19.1% in FY24. The stock is trading closer to its trough P/E multiples post 31% correction in the past 18 months. We recommend BUY with a 1-year price target of INR1,500.

ICICIGI well-placed to capture the ensuing revival in Auto sales
- Following a muted growth in auto sales over the past couple of years, we expect a revival led by: 1) the easing of supply-side issues as the global economy opens up, 2) relatively stronger economic growth and Infrastructure investments driving demand for CVs, and 3) the opening up of offices and colleges, which will drive 2W demand.
- ICICIGI auto segment has a relatively stronger correlation with new Auto sales when compared to that of the industry (60% v/s 40%). Additionally, the mix is skewed towards passenger cars and 2Ws, where the revival is likely to be stronger. Post the decline of 200bps in market share over the past two years, we expect an improvement going ahead.
- Technology initiatives, leadership in EV segments, commercialization of sandbox products, and incremental OEM partners through its merger with Bharti AXA will be additional tailwinds for ICICIGI.
- In terms of claims, we expect steady trends as the impact of adverse pricing is offset by benefits from the implementation of the Motor Vehicles Act.
- Overall, we expect ICICIGI to report 21% CAGR in the Motor segment, led by a 19%/23% CAGR in Motor OD/TP business.