ICICI Lombard General: Centralised strategy to drive expansion

5 Apr 2024 , 11:50 AM

Analysts of IIFL Securities recently met with Mr. Sanjeev Mantri — CEO and Mr. Gopal Balachandran — CFO of ICICI Lombard (ILOM), to understand the new strategy and long-term vision of the recently appointed CEO for the company. He stressed upon focusing on the mantra – One IL, One Team – that aims to transcend functional silos and convert the organisation into a united team working towards a single organisational purpose. Some of the initiatives include running distribution channels based on a P&L rather than headcount, and, moving away from vertical-based strategy teams to a single centralised team. Some of these initiatives have scope to improve topline by 8-10%. Overall focus remains on profitable growth and accelerating market share, if combined ratios inch closer to 100%. Areas of improvement include agency in Health and Motor, business in crop and products on the Retail Health side. New EoM regulations should improve industry CoR and provide an advantage to ILOM. Analysts of IIFL Securities maintain 14%/23% GDPI/EPS Cagr over FY24-26. The stock is trading at 32.1x FY25 P/E, near its historical average. They raise 12-month TP to Rs1,830 on roll forward to FY26. Maintain BUY.

Strong Corporate Health Portfolio; Retail Health a gradual play:

Employer-Employee segment continues to be the heart of ILOM’s Health portfolio. Strong demonstration on the claims front during Covid and lending activity picking up in the Banca channel post Covid fared well for ILOM. Its investment in Retail Health is a gradual work-in-progress. Focus remains on building a sustainable portfolio and grow faster than SAHIs.

Weakness in Motor offset by multi-distribution business model:

While ILOM witnessed minor market share loss in the Motor segment last year, it has started to recoup the same with high growth in new private car segment. Presence of a multi-channel business model helped them navigate this business cycle. ILOM believes that with the new EoM regulations, industry CoR should improve; benefitting ILOM disproportionately.

Commentary on regulatory changes:

i) Potential implementation of a composite license scheme is not a threat for ILOM and they will realign their business accordingly. ii) The new EOM guidelines could lead to improved combined ratios for the industry, in which case, ILOM will strive to go faster even if their COR inches towards 100%. Their RoEs may structurally remain around 16-18%. Key risks: Regulations, pricing competition.