ICICI Lombard Shares Have Dropped 31% In The Past 18 Months, But Analysts See A Quick Turnaround

Updated: Jul 17



The share price of ICICI Lombard General Insurance has decreased by more than 9% so far this year, generally in line with the benchmark indices. The stock is firmly in the bear's grasp after declining more than 23% from its September 2021 highs. In contrast, Motilal Oswal commenced coverage of the company in a recent report with a "Buy" rating and a target price of Rs. 1,500, indicating a potential gain of more than 17% from the counter's latest finish of Rs. 1,277.40.


"The general insurance industry is on track to deliver a healthy 12 percent CAGR in premium over the next ten years, driven by three key factors: 1) a positive trend in auto sales, 2) a persistently strong momentum in the demand for health insurance, and 3) commercial insurance lines expanding in tandem with a strong economic expansion. In the midst of this, ICICIGI, with its merger with Bharti Axa, has grown to become India's largest private sector general insurance firm (BAXA). increased investments in the health distribution network and new auto salesThe main causes for ICICIGI's earnings are the synergies from the BAXA merger and anticipated outcomes of previous investments in technology. According to research by Motilal Oswal, the company is expected to produce a premium/PAT CAGR of 19%/28% and an RoE of 19.1% in FY24.


Why The Steep Correction?

Despite the Nifty50 index remaining unchanged over the previous 18 months, the stock has experienced a 31% correction, according to Motilal Oswal. The management's decision to change its emphasis from profitability to growth and the expectation that ICICI Bank's holding will decrease from its current 48 percent to under 30 percent by September 2023 to RBI restrictions are the main causes of the sharp reversal.


The company is currently trading close to an all-time low one-year forward valuation following the drop. As it generates profitable growth and more information about the stake sale becomes clear, the stock should rerate toward its historical valuation, the brokerage added.


Additionally, the international brokerage firm Credit Suisse has started to cover ICICI Lombard General Insurance and is optimistic about the stock. The stock is currently trading at 25x forward earnings, down from its long-term average of 40x. Although the delayed ROE recovery calls for a discount to long-term multiple, Credit Suisse believes the company's development strategy and scale-up of its health business will lead to a re-rating.

Credit Suisse has assigned the stock a "Outperform" rating and set a target price of Rs 1,400 per share. This resulted in a significant 10 percent increase from the share's opening price of Rs. 1,273 on Friday. We value ILGI at 32x 24-month forward earnings (20% off LT mean) to reach our target price of Rs. 1,400, according to experts, and we commence with an OUTPERFORM rating.

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