Morgan Stanley Initiates Coverage On ICICI Lombard With A 'Buy'; Stock Gains
Shares of ICICI Lombard General Insurance Co. gained after three days as Morgan Stanley turned 'overweight' on the company, betting on its long-term potential.
"The next three months is an opportune time to build positions in the large-cap quality stock," the research house said in a note, initiating coverage on the general insurer. "ICICI Lombard is the largest multi-line private sector player in India with a strong track record of profitability, diversification and risk management."
While there are investor concerns about the company's loss of premium market share and a slowdown in gross direct premium growth to single digit, ICICI Lombard stands to benefit from the multi-decade growth potential of the non-life insurance industry, Morgan Stanley said. It expects private companies' market share to rise from 57% in FY21 to 85% by FY36.
ICICI Lombard, according to the note, will see its gross direct premium growth bottom out by December 2022 and bounce back to double digits in the quarter ending March 2023.
Morgan Stanley has set a price target of Rs 1,920 apiece, an upside of 35% from the closing on Dec. 6.
Shares of the general insurer rose as much as 2.38%—the highest in two weeks. The stock was trading 1.72% higher at 1:56 p.m. on Wednesday compared with a 1.6% rise in the benchmark Nifty 50.
Of the 26 analysts tracking ICICI Lombard, 17 recommend a 'buy', four suggest a 'hold' and five have a 'sell' rating, according to Bloomberg data. The average of 12-month price targets implies an upside potential of 14.5%.
Morgan Stanley views on ICICI Lombard:
Domination on the profit market share metric.
Consistent return on equity.
The return on equity has been consistently over 20%. It fell to 15% in FY22 due to Bharti AXA General Insurance Co.'s integration and high loss ratio in health (due to the pandemic).
The RoE will revert to the 20%-plus levels from the financial year 2023.
A severe Covid-19 third wave is a potential risk.