Target: ₹1,400

CMP: ₹1277.40

We expect ICICI Lombard’s (ILGI) premium growth to recover to about 14 per cent CAGR (vs about 7 per cent CAGR over FY19-22), led by: improvement in motor growth (to +12 per cent vs 4 per cent) with pick-up in auto sales, reducing pricing pressures and improving market share in CV segment; and continued strength in health premiums (+17 per cent) as agency network scales up over FY23. The merged entity growth (+11 per cent in Q4-22) has held up in April-May 2023.

FY23 loss ratio will improve about 200 bps to about 73 per cent as health claims normalise post-Covid and could improve another 100 bps by FY25 as the share of health climbs up in the mix.

Post the Bharti AXA acquisition, ILGI’s leadership strengthened (200 bps ahead of the next player). Also, its large AUM (60 per cent ahead of the next player) provides as stable investment income, which shields profitability during periods of volatile macro.

ILGI has de-rated with growth deceleration, rising competition, and lower ROEs. Retail health scale-up has also been slow. The stock has derated from long-term mean of 40x fwd earnings to 25x currently. While the delayed ROE recovery warrants a discount to long-term multiple, we believe execution on growth and health franchise scale up will drive re-rating for the company. Earnings outlook remains strong.