- Target
- ₹1,960
- At report
- ₹1,788+10% printed
- Vs our close
- +29.4%
Motilal Oswal downgrades ICICI Lombard to Neutral (from a prior higher rating) after a significant Q1FY27 miss, with PAT down 46% YoY on a combined ratio of 107.2% driven by two large fire-segment losses and higher motor TP claim reserves following a Supreme Court judgement. The broker cuts FY27/FY28 PAT estimates by 14%/11% and sets a new target price of INR1,960 (28x FY28E EPS), implying 10% upside.
- Gross written premium grew 10% YoY to INR88.6b (in line) and NEP rose 16% YoY to INR59.5b, led by 31% YoY growth in health (incl. PA)
- Combined ratio surged to 107.2% (vs 101.9% expected, 102.9% in 1QFY26) due to two large fire losses (INR0.63b, 1.0% CoR impact) and INR1.65b increase in Motor TP claim reserves (2.8% CoR impact) after the Supreme Court judgement
- PAT of INR4b declined 46% YoY, a 45% miss vs estimate, hit by weak underwriting and investment income 12-14% below estimate; excluding one-offs, combined ratio was 102.3% and PAT ~INR5.8b
- Retail health market share improved to 4.5% from 3.5% YoY, with long-term policy mix rising to 53.4% from 31.8% YoY, indicating structural strength in the health franchise
- Commercial lines (fire) remain under pricing pressure industry-wide; management prioritizing underwriting discipline over market share, with early signs of pricing stabilization
- RoE fell to 9.6% in 1QFY27 (13.6% excluding one-offs) vs 20.5% in 1QFY26, reflecting the claims-driven profitability hit
- Offset to the higher combined ratio depends on a tariff hike in Motor TP business, commission alterations in Motor, or realignment of Motor OD profitability — visibility on all three is described as bleak
- Continued irrational pricing competition in the commercial fire insurance segment
- Evolving judicial landscape on Motor TP claims could require further conservative reserve strengthening
- Gross premium grew 10% YoY to INR88.6b, in line with estimate; NEP grew 16% YoY to INR59.5b
- Claims ratio at 76.4% (est. 72.4%) vs 73% in Q1FY26; combined ratio at 107.2% vs estimate of 101.9%
- Underwriting loss of INR6.3b vs loss of INR2.9b in Q1FY26 (vs estimate of INR3.1b)
- Adjusted/Reported net profit fell 46% YoY to INR4.0b, a 45.4% miss vs estimate of INR7.4b
- Investment income on policyholders' account INR8.6b (12% below estimate); shareholders' account INR2.9b (14% below estimate)
- RoE at 9.6% for Q1FY27 vs 20.5% in Q1FY26 (13.6% excluding one-off claims impact)
| Broker estimates | Unit | FY26 | FY27E | FY28E |
|---|---|---|---|---|
| NEP | INR b | 222.6 | 251.9 | 283.8 |
| U/W Profit | INR b | -11.1 | -12.5 | -10.9 |
| PBT | INR b | 36.6 | 37.1 | 45.7 |
| PAT | INR b | 27.7 | 28 | 34.5 |
| EPS | INR | 56.3 | 56.8 | 70 |
| BVPS | INR | 341.9 | 382.3 | 435.8 |
| Claims ratio | % | 71.1 | 71.4 | 70.4 |
| Combined ratio | % | 103.4 | 103.3 | 102.2 |
| RoE | % | 17.8 | 15.7 | 17.1 |
| P/E | x | 31.8 | 31.5 | 25.6 |
| P/BV | x | 5.2 | 4.7 | 4.1 |
Valuation: 28x FY28E EPS. Target price of INR1,960 based on 28x FY28E EPS of INR70.0, implying 10% upside from CMP of INR1,788; rating downgraded to Neutral. NEP estimates maintained, but PAT estimates cut 14%/11% for FY27/FY28 and CoR estimates raised 80bp/20bp following the Q1FY27 claims performance; FY27E PAT is now flat YoY. Rating downgraded from a higher rating to Neutral and target price changed alongside the downgrade.
Extraction note: Report header explicitly flags 'Rating change' and 'Downgrade to Neutral' along with 'TP change' and 'Estimate change', confirming this is a rating downgrade, though the prior rating level is not stated in the extracted text. Last page contains an unrelated promotional insert ('M…