Q3FY23 Review: ICICI Lombard General: Improved execution could drive re-rating

18 Jan 2023 , 01:55 PM

ICICI Lombard (ILOM) reported 11% YoY growth in net profit in Q3FY23, dragged down by higher-than- expected expense ratio even as growth in GDPI was strong (17% YoY), and loss ratios remained healthy. Management reiterated that in order to grow faster, ILOM will continue to invest in digital, health agency channel and CVs book. 

Analysts at IIFL Capital Services reiterated that ILOM’s earnings are at an inflection point, as a combination of: (1) Pickup in New Vehicle sales 

(2) Increased focus and investments in Retail Health

(3) Materializing merger synergies

(4) Rising interest rates 

could nearly double the earnings over FY23-25. However, improvement in expense ratio has not progressed as was expected, since investments are more than offsetting cost synergies from BAX acquisition, in the view of analysts at IIFL Capital Services. They have maintained EPS estimate for FY24/25, but have reduced it by 5% for FY23 to account for higher expenses in the near term, and are forecasting 12%/36% GDPI/EPS CAGE over FY23-25. The stock is trading at 25x FY24 estimated P/E, at near trough multiples.

Analysts at IIFL Capital Services have maintained Buy recommendation on the stock.