"We expect the company’s RoE to remain healthy in the range of 18-20 percent on high investment income and better operating efficiency. The company too has robust payout ratio," says Akash Jain, Vice-president, Equity Research at Ajcon Global Services.
We are bullish on ICICI Lombard for long term (5-10 years) as the non-life insurance segment is under-penetrated in India and the company’s financials are strong.
However, at current P/E multiple of over 40x, the stock seems expensive as compared to other listed company. In case of general insurance company, we use P/E multiple to value the company rather than embedded value which is used as a relevant valuation measure for life insurance companies, which is prescribed by the regulator.
Embedded value is a valuation measure, mostly specific to the insurance industry, and is calculated by adding the adjusted net asset value and the present value of future profits of a firm.
Fairfax Financial Holdings in May sold 12.2 percent of its stake in the company to certain private equity firms for Rs 2,470 crore, thereby valuing the firm to around Rs. 20,000 crore.
At current market price of Rs 767, the company has a market cap of around Rs 34,800 crore, which is around 70 percent premium to the May deal which we believe is damn expensive.
We recommend long term investors to add this company on a decent decline and do systematic investment as it can give robust returns over a longer term of say 5-10 years.
ICICI Lombard is a joint venture between ICICI Bank and Canadian NRI Prem Watsa-promoted Fairfax Financial Holdings. ICICI Lombard is the largest private insurance firm with 8.4 percent market share on gross direct premium income (GDPI) basis among all non-life insurers in India. It holds 18.0% share among private sector non-life insurers in the country, and manages Rs 164.5 billion of investment assets.
The company registered decent set of numbers in Q3FY18. It reported 5.2 percent jump in its profit for the quarter. PAT stood at Rs 231.76 crore, up from Rs 220.3 crore a year earlier. The company, which was listed on the exchanges in September 2017 continues to perform well and expect the uptrend to continue.
Q3FY18 increase in profit has come from underwriting performance while investment income remained flat. the company’s focus is on keeping the combined ratio at sub-100 percent.
We expect the company’s RoE to remain healthy in the range of 18-20 percent on high investment income and better operating efficiency. The company too has robust payout ratio.Disclaimer: The author is Vice-president, Equity Research at Ajcon Global Services. The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.