This Large Cap General Insurance Player Declares 55% Dividend, Gets 'Buy' Rating

Motilal Oswal, a leading stock-broking firm, sees growth from the stock of ICICI Lombard General Insurance Company Limited. This large cap general insurance player has declared a dividend of 55% along with strong Q4 FY23 performance. Additionally, the stake of ICICI Bank in the company has been reduced, which was a key overhang. The brokerage firm feels that all these go positive for the insurance company ahead.

As per the research report of the brokerage firm, after its merger with Bharti AXA, the stake of ICICI Bank in ICICI Lombard was reduced to 48.02% owing to the fresh issue of shares. Initially, it was to be reduced by 30% by September this year as per the RBI regulations. However, in March this year, RBI extended the timeline to September next year.

Hence it was a key overhang for the ICICI Lombard General Insurance stock since the merger announcement with Bharti AXA in August 2020. Therefore, Motilal Oswal noted that the stock was massively de-rated in its valuations in P/E terms to 28x currently from 55x in December 2020.

In terms of the outlook of the company, growth in its motor segment is likely to be back-ended with the company while waiting for the rationalisation of pricing in the OD segment, the stock-broking firm explained.

The firm believes that in the health segment, the benefits of price hikes and improving the efficiency of the agency channel should translate into improved profitability. "Synergy benefits from the Bharti AXA merger (technology-related), scale benefits and improvement in the mix on health business (higher share of retail health) should aid in improving the combined ratio and RoE over the next couple of years. We maintain our BUY rating with a target price of Rs 1,400 (premised on 29x FY25E)."

Performance of the company

The gross direct premium income (GDPI) of the insurance company stood at Rs 210.25 billion in FY23 compared to Rs 179.77 billion in FY22, a growth of 17.0%, which was higher than the industry growth of 16.4%.

Moreover, the GDPI of the company for Q4FY23 was at Rs 49.77 billion as against Rs 46.66 billion in Q4FY22, a growth of 6.7% as against the industry growth of 16.9%.

Consequently, the profit after tax (PAT) grew by 36.0% to Rs 17.29 billion in FY23 compared to Rs 12.71 billion in FY22. PAT includes a reversal of tax provision of Rs 1.28 billion in Q2FY23, while for the quarter, PAT grew by 39.8% to Rs 4.37 billion as against Rs 3.13 billion in Q4FY22.

Dividend Details

The Board of Directors of the company has proposed a final dividend of Rs 5.50 (55%) per share of face value of Rs 10 each for FY23. The payment is subject to the approval of shareholders in the ensuing Annual General Meeting of the company. The overall dividend for FY23 including the proposed final dividend is Rs 10 per share.

Stock Price Movement

The latest stock price of this large cap insurance company has gained a whopping 8% to Rs 1,191.70 per share on an intraday basis. In the last one year, the share price has plunged by 6.1 while over three years, it has fallen steeply by up to 90.43%.

Disclaimer

The stock has been picked up from the brokerage report of Motilal Oswal. Greynium Information Technologies, the author or the brokerage firm will not be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.