This non-life insurance player's shares could fall 20% in the next 12 months

HDFC Securities has maintained 'sell' rating on ICICI Lombard General Insurance Company Ltd reducing its target price to Rs 1,126 per share. The brokerage expects changing regulations in motor insurance to affect the private non-life insurance player's profitability in the long run.

The revised target price is 20 percent lower than ICICI Lombard's closing market price on Friday at Rs 1,412.50. The stock traded at Rs 1,381.25 per share on NSE, down 2.21 percent.

"We expect changing regulations in motor insurance to drive down both claims and tariffs, creating supernormal profitability in the short term. We believe that this period (of super-normal profitability) will be shortlived, as we expect Irdai to clamp down on TP pricing restricting profitability. We believe the market is not factoring this risk, accordingly, we rate ICICIGI a SELL with a reduced TP of Rs 1,126 (Dec-21E P/E of 26x and a P/ABV of 5.7x)," analysts at HDFC Securities said in a report.

HDFC Securities gives a 'sell' rating to a stock that is expected to deliver less than (-1)10 percent returns over the next 12-month period. ICICI Lombard on Friday posted a 23 percent year-on-year (YoY) rise in its December quarter net profit at Rs 294.11 crore. But gross domestic premium income of the company remained largely flat at Rs 3,693 crore in Q3FY20 compared to Rs 3,699 crore in the year-ago period.

The insurer's underwriting losses for Q3 stood at Rs 22.04 crore compared to a loss of Rs 28.59 crore loss in the year-ago period. In the post-earnings call, ICICI Lombard Managing Director and Chief Executive Officer Bhargav Dasgupta said there has been pressure on the motor insurance's own damage (OD) segment ever since the long-term motor policies have been launched.

"Motor OD rates have reached a level where it is difficult to sustain. There should be some price corrections but this would depend on the competitive scenario," said Dasgupta. ICICI Lombard General shares have returned more than 60 percent in the last one year, while so far this year the stock has remained flat.

Source: CNBC TV18