Q4FY24 Review: ICICI Lombard General: Strong exit to FY24; an exciting year ahead!

18 Apr 2024 , 11:30 AM

ICICI Lombard (ILOM) reported 19% YoY growth in PAT in Q4FY24, led by better than expected combined ratio even as growth in GDPI was healthy (22% YoY). Management reiterated their focus on oneIL, one-team strategy, with a centralised strategy driving profitable growth. Analysts of IIFL Capital Services continue to believe that ILOM’s earnings will grow strongly at 26% Cagr over FY24-26, led by: (1) momentum in the motor segment as competition eases, (2) continued focus and investments in Retail Health even as Corporate Health grows strongly, (3) materialising merger synergies, and (4) higher yields. The improvement in combined ratio is progressing well and analysts of IIFL Capital Services now expect it to achieve 102% by FY25 itself. They fine tune FY24-26 EPS by +1% and TP to Rs1,850. Analysts of IIFL Capital Services forecast 15%/26% GDPI/EPS Cagr over FY24-26. Stock is trading at 32/27x FY25/FY26 P/E, leaving little room for further re-rating, though earnings upgrades remain an upside risk given the focus on growth. Maintain BUY.

Strong growth impacted by one-offs in base quarter:

ILOM’s GDPI growth of 22% YoY in 4QFY24 was driven by Motor segment, led by steady growth in OD (19% YoY) while TP was strong (37% YoY). Health saw steady 28% YoY growth, driven by Retail (+22% YoY) and Group Health (+32% YoY). Improvement in retail health, new-vehicle sales, easing competition and impact of price hikes in health may continue to support growth in FY25 and would be the key stock driver, in analysts of IIFL Capital Services view. Analysts of IIFL Capital Services also believe expanding to less explored areas (crop, online distribution) could add to growth ahead.

Pace of combined ratios improvement on track:

Loss ratio at 68.6% improved by 140bps QoQ (560bps YoY), led by 6.5ppt improvement in motor OD (11ppt YoY) while motor TP also improved by 13.1ppt YoY. Total expense ratio worsened by 420bps YoY as commission ratios increased by 210bps QoQ. However, management believes they will remain within the new EoM caps while many players will struggle to maintain the same. They reiterated intent to keep investments high in Health and Digital.

Maintain BUY:

Despite the recent re-rating, ILOM’s secular underpenetration story is intact, and its new focus and strategy could surprise positively, in analysts of IIFL Capital Services view. While the stock is trading at 32x FY25 P/E, it offers 26% EPS Cagr over FY24-26. Analysts of IIFL Capital Services maintain BUY with 12-mth TP of Rs1,850 based on 30x 2YF EPS. Key risk: rise in competition, regulatory changes.