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JMFL
ICICI Lombard (Buy)
CMP: ₹846
Target: ₹1,030
In 3QFY19, ICICI Lombard recorded strong gross growth in premium of 26 per cent y-o-y driven by the motor third party (TP) business (+66 per cent y-o-y increase). The insurer was a significant beneficiary of the court ruling on mandatory long-term motor TP insurance given its dominance in motor sub-segments such as private cars and two-wheelers. However, PAT of ₹239 crore was a bit weak, growing just 3 per cent y-o-y. Softer PAT growth was on account of a) higher first-year commission rate on long-term motor TP policies; and b) 86 per cent y-o-y increase in sales promotion expenses on account of up-fronting other acquisition costs. We believe ICICI Lombard is well-positioned to deliver 16 per cent GDPI growth — in line with the industry — over FY18-21E, enabled by i) structural factors such as a) non-life under-penetration and low density as well as b) urbanisation and rising asset ownership; ii) granular focus on niche segments within Motor/Health; and iii) a diversified and productive distribution network.
We value the stock at 28x March 21E EPS for a PAT CAGR of 25 per cent over FY18-21E and ROE of 22 per cent by FY21E. We maintain ‘buy’ rating with a TP of ₹1,030.
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