PORTFOLIO UPDATE!!
1] ICICI BANK
Nothing wrong with this bank. The numbers were excellent and I believe going forward this bank will continue to perform decently well than its peers. As I have mentioned in my previous posts, I am planning to reduce my largecap allocation and shift to midcap and small cap companies, as rightly suggested by @hitesh2710 . So I have sold 20% of my ICICI Bank shares for 55% profit. I will sell more 20%, whenever I get a better buying opportunity in one of my portfolio midcap and smallcap.
2] ICICI LOMBARD GENERAL
We all have read and heard about the under penetration of Insurance in India. The Insurance market as a percentage of GDP is only 3-4% while the general insurance is only 1%. The growth opportunity for general insurance players is huge as compared to the life insurance players. Yes, one major point to look out for is the loss ratio, which if not properly managed can lead to a lot of damage. But ICICI has been able to manage it very well. The loss ratio for health and travel segment shot up to 109% last FY, but this FY it has come down to its long term avgs of 77%. This means normalcy is coming back.
The company has a majority revenue coming from passenger vehicle insurance which is comparatively a high loss ratio business. Hence the company is focusing on increasing the Commercial Vehicle business while maintaining the PV segment business. The loss ratio across segments are quite normal and sustainable in the long term.
Coming to valuations, the company seems to be valued correctly or a slight undervaluation cannot be neglected. Due to high loss ratio last FY during the second covid wave impacted the profitability but it has now normalized to previous levels and we can see that in their TTM profit of 1570cr. This quarter was exceptionally well due to a lower tax liability but even if it didn’t help, the PAT comes at 457cr, which is the highest ever PAT for this company. But PAT might not be acceptable to all, so I am considering price to book value which is at 6 and the 5yr average is 8.5. This itself values the company at 1700rs per share. Also the PE average is at 45 while now it is at 36. Even EV/EBITDA is quite beaten down. Now one might say, something might be wrong in this company that is why it has been beaten down so much. But comparing with the whole insurance sector, except for SBI Life, has greatly underperformed, a popular example being LIC, one can safely assume it is not a specific stock which has underperformed but it is the whole sector going through a bad phase.
Coming to future prospects, I expect better results, thanks to the festivals in the next 2 quarters. Historically, these months are beneficial for general insurance companies. ICICI Gen has performed better than its peers, consistently for years and the growth of general insurance will largely be led by ICICI Lombard.
I am expecting 1600 level by next 2 quarters. It is still in a downward channel but I think the trend might change soon. Once FIIs start buying, these high beta stocks will start to perform.
Open to criticism. Would like to know your opinion and please point out if I am wrong many any assumptions.
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