HDFC Securities bullish on ICICI Lombard amid strong demand outlook

ICICI Lombard, which is trading at a discount of over 26% from its 52-week high price, has been given an add rating by brokerage firm HDFC Securities for a target price of Rs 1,370, translating into an upside potential of over 20% as there remains strong growth outlook in the underlying auto space.

The brokerage mentioned that the general insurance player logged an increase in net premiums earned (NEP) which stood ahead of estimates at Rs 3,840 crore, given the sharp uptick in health as well as crop segments. Furthermore, loss ratios in the health segment moved higher up over 81% on a quarter-on-quarter basis. Also normalization of road traffic after Covid-led disruption together with the pricing pressure pushed claims ratio in the motor own damage (OD) space.

Sharp improvement in investment yields led float income to Rs 860 crore, said the brokerage firm.

Management of the company said the H1FY23 mix of CV business improved to 23% on the back of improving positioning of the segment, while the personal vehicle segment continued to suffer. Also, the brokerage noted that the experience in third party (TP) claims on the back of changes in Motor Vehicle are yet to show up.

“The management is confident in the growth outlook of around 18- 20% YoY in H2 and it expects motor OD pricing to improve in the near term." Further, the company is confident in the agency force of Bharti Axa for scaling up its retail health business.

The brokerage is of the view that the pessimism on the stock is overdone and there remains a strong demand in the underlying auto segment. Hence the brokerage has accorded an ‘Add’ rating with a TP of Rs 1,370 (implied Sep-24E PE of 30x and P/ABV of 5.1x) even as the combined operating ratio at the insurance player took a hit.

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