Moneycontrol
Last Updated : Nov 05, 2018 10:37 AM IST | Source: Moneycontrol.com

Buy ICICI Lombard, target Rs 961: Rudra Shares & Stock Brokers

Going forward, rising interest rates will benefit the insurer as almost 80 percent of its book consists of fixed income securities, says Manali Bhatia of Rudra Shares & Stock Brokers.

Moneycontrol Contributor @moneycontrolcom

Manali Bhatia

ICICI Lombard General Insurance's gross direct premium income (GDPI) grew 11.25 percent YoY as against industry growth rate of 13.3 percent in Q2FY19, in line with management’s stated strategy to pursue only profitable growth.

Improvement in operating metrics was driven by a reduction in expense ratio (net) to 21.3 percent in the first half of FY19 from 24.3 percent in H1FY18. Investment leverage (net of borrowings) was 3.77x end September 2018 as compared to 3.93x end September 2017.

Going forward, rising interest rates will benefit the insurer as almost 80 percent of its book consists of fixed income securities. The company is well-positioned to deliver 15 percent GDPI growth in line with the industry over next 2-3 years by leveraging its parent’s brand equity, diversified product mix, granular focus on niche segments within motor and health insurance and strong/productive distribution network.

Due to its superior underwriting standards, high ROE, healthy investment book, high solvency ratio, low capital allocation risk and being the first non-life insurance player, it can have an advantage over others.

In the absence of suitable and comparable listed peer ICICI Lombard, deservedly, is trading at a premium compared to other general insurance players. While the premium valuation will sustain, near term upside in stock price is limited.

Disclaimer: The author is a Senior Research Analyst at Rudra Shares & Stock Brokers Ltd. The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Disclosure: Rudra or its research analysts, or his/her relative or associate do not have any direct or indirect financial interest(except Sequent scientific Ltd.) nor any other material conflict of interest at time of stock recommendation, in the subject company. Also, Rudra or its research analysts, or his/her relative or associates do not have actual/beneficial ownership of one percent or more securities of the subject company. However, Rudra or its research analysts, or his/her relative or associate may have positions in Futures & Options.
First Published on Nov 5, 2018 10:37 am
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