Target: ₹1,650

CMP: ₹1,712.75

ICICI Lombard General Insurance is well on track to achieve 102 per cent combined operating ratio (CoR) by FY25; its shares have run up sharply post good Q3FY24 results.

Recent outperformance of ICICI Lombard shares appears to be fully pricing-in improved operational performance and optimism of: no near-term headwind for GI on the Regulatory front; minimum 0.8 per cent stake purchase by ICICI Bank before 9-Sep-24; material improvement in CoR and EPS on Ind-AS implementation starting Apr-25.

But we also see challenges: likelihood of no hike in Motor TP tariffs causing lower industry growth and worsening of combined ratio in the TP segment; prospect of greater intensity in Motor OD and Retail Health to drive higher distribution payouts and pressure on pricing, in pursuit of growth by smaller players; price revision-led growth moderating in the Health segment.

Against this backdrop, we marginally revise our FY24-26 estimates, leading to 1-2 per cent cut in GWP, about 0.4 percentage point increase in CoR and about 3-4 per cent cut in EPS for FY25-26. We downgrade the stock to Reduce from Add, with Mar-25E TP of ₹1,650 (vs. Dec-24E TP of ₹1,600 earlier), implying 28x FY26E P/E and 5.2x FY26E P/B.