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ICICI Lombard General Insurance’s share price has tumbled more than 9 per cent so far this year, largely in line with the headline indices. It has fallen more than 23 per cent from its September 2021 highs, putting the stock firmly in the bear’s grip. However, Motilal Oswal, in its recent report, initiated coverage on the stock with a ‘Buy’ rating and a target price of Rs 1,500, signaling a potential upside of over 17 per cent in the counter from its previous close of Rs 1,277.40.

“The general insurance industry is all set to deliver a healthy 12 per cent CAGR in premium over the next decade led by 1) healthy trend in auto sales, 2) sustained strong momentum in health insurance demand and 3) commercial insurance lines growing in line with a robust economic growth. Amidst this, ICICIGI has emerged to be India’s largest private sector general insurance company post its merger with Bharti Axa (BAXA). Stronger correlation with new auto sales, investments into health distribution channel, synergies from BAXA merger and expected results of past investments in technology are the key earnings triggers for ICICIGI. During FY22-24, we see the company delivering a premium/PAT CAGR of 19 per cent/28 per cent and a RoE of 19.1 per cent in FY24,” Motilal Oswal said in a report.

“Amidst this, ICICI Lombard has emerged to be India’s largest private sector general insurance company post its merger with Bharti Axa (BAXA). Stronger correlation with new auto sales, investments into health distribution channels, synergies from BAXA merger and expected results of past investments in technology are the key earnings triggers for ICICI Lombard,” it said.

The company with a market capitalisation of more than Rs 62,000 crore as of July 7, 2022, had hit a 52-week high of Rs 1,674 on September 22, 2021.

Why The Steep Correction?

Motilal Oswal highlighted that the stock has corrected by 31 per cent over the past 18 months, even as Nifty50 remained flat. The steep correction has been on account of a shift in the management’s focus to growth from profitability earlier and an expected reduction in ICICI Bank’s stake to sub-30 per cent levels by September 2023 as per RBI regulations from 48 per cent at present.

“After the correction, the stock is trading near an all-time low one-year forward valuation. The stock should re-rate towards its historic valuation as it delivers profitable growth and clarity emerges on the stake sale,” the brokerage added.

The global brokerage firm Credit Suisse has also initiated the coverage of ICICI Lombard General Insurance and is bullish on the stock. “The stock has derated from long-term mean of 40x fwd earnings to 25x currently. While the delayed ROE recovery warrants a discount to long-term multiple, we believe execution on growth and health franchise scale-up will drive re-rating for the company,” Credit Suisse said.

With an ‘Outperform’ rating, Credit Suisse has pinned a target price of Rs 1,400 per share on the scrip. This translated to a strong 10% upside from Friday’s opening price of Rs 1,273 per share. “We initiate with an OUTPERFORM rating and value ILGI at 32x 24-month forward earnings (20% discount to LT mean) to arrive at our target price of Rs1,400,” analysts said.

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