Sell

GODIGIT delivered a largely in-line performance during Q2FY26, with combined ratio at 111.4% (down by 70bps YoY) vs our estimate of 111%. However, PAT at Rs1.17bn (+30% YoY) was lower than our estimate of Rs1.2bn.

Go Digit’s Q4FY25 results were a mixed bag. Amid the volatile and difficult external environment in FY25, marked by EoM glidepath, no Motor TP tariff hike, sustained competition in Motor OD, and implementation of 1/n regulations for gross premium accounting, the company found it difficult to replicate its past success of accelerating growth with improving profitability.

Go Digit hosted an Analyst/Investor Day on 17-Feb-25 in Bangalore, for select analysts and investors where the management provided a detailed update on its business strategy and outlook.

Go Digit reported a better set of numbers in Q3FY25 than our estimates, on account of higher inward reinsurance business growth and sharp improvement in Group Health (including PA) underwriting.

ICICIGI reported a strong performance for Q3FY25, wherein GWP at Rs64.7bn (+0.6% YoY), impacted by the 1/n regulation, came in 0.9% lower than our estimate; however, combined ratio at 102.7% was significantly lower than our estimate of 103.9%, driving PAT of Rs7.2bn (+68% YoY) and beating our estimate by 12.4%.

ICICIGI reported a mixed Q2FY25 result, where the operating performance at 10.8% YoY GWP growth and the combined ratio at 104.5% came in lower than our estimates.

We recently met Kamesh Goyal (Founder and Chairman), Jasleen Kohli (CEO), and Ravi Khetan (CFO) of Go Digit for an update on the company’s strategy and recent developments in the general insurance sector.

At 92.8% for Q4FY24 (and 96.7% for FY24), the combined ratio (CoR) of Star
Health was slightly worse than our estimates.

Valuation and Risks: We have valued the stock based at 7.55x 1-yr forward P/BV mean at 0.8 x discount and has arrived at a price target of Rs. 1155 with potential downside of 13% and we rate it SELL'.

With a long run-way of growth, improving regulatory environment, and strong innovation opportunities, we remain positive on the general insurance sector. Regulatory crack-down on motor TP pricing is key risk. Pvt. multi-line insurers Mar-20/FY20 GDPI grew -16.2/+11.7% YoY to Rs 67.1/911.8bn. Decline in Mar-20 was along expected lines as new policy sales have declined as a result of the lockdown and renewals have been impacted by the forbearance (until 15-May-20) given by IRDAI on premium payments, and extra time (until June-20) allowed for claiming deduction under the IT Act, for the purchase of health cover.

We will be reviewing our numbers and recommendations once we have a better understanding of the Covid-19 situation. ICICIGI: GDPI (ex-crop) increased 13.3% YoY to Rs 10.4bn. Growth momentum (ex crop) improved from -2.0/12% YoY seen in Dec-19/Jan-20. Health and Motor OD business reported growth (ahead of industry) of 12.4% and 12.7% respectively. FY20TD GDPI for ICICIGI stands at Rs 125.7bn (-7.5% YoY), with ex-crop GDPI is healthy at Rs 121.7bn (+13.9% YoY). We have a SELL on ICICIGI with a TP of Rs 1,170 (Mar-22E P/E of 26.0x and a P/ABV of 5.7x). ICICIGI is currently trading at a FY21/22E P/E of 26.6/22.3x and P/ABV of 4.9/4.0x. NIACL: GDPI grew to Rs 19.3bn, +24.2% YoY (ex. crop at Rs 18.6bn, +26.0% YoY) led by growth primarily in health business. Growth in retail business segments such as motor TP/health improved moderately to 20.7/30.3% YoY. FY20TD GDPI for NIACL stands at Rs 246.9bn (+15.6% YoY), ex-crop GDPI at Rs 219.1bn (+12.7% YoY). We have a SELL on NIACL with a TP of Rs 130 (0.65x Mar-22E ABV (less 5% discount for expected 10.4% supply). NIACL is currently trading at a FY21/22E P/E of 7.4/6.2x and P/ABV of 0.4/0.4x. Bajaj Allianz General Insurance (BAGIC): GDPI slipped by 1.4% YoY in Feb-20 to Rs 7.0bn, (ex-crop GDPI at Rs 6.6bn +1.6% YoY) led by sharp decline in crop business (-32.2% YoY). Motor OD GDPI declined 8.6% YoY vs. industry decline of 2.7% YoY. FY20TD GDPI for BAGIC stands at Rs 120.5bn (+20.1% YoY), while GDPI (ex-crop) is Rs 89.4bn...

NIACL is India's largest insurer but continues to make high underwriting losses (9MFY20 COR: 115.8%). We also note company's competitive positioning is only weakening and thus we remain concerned of company's ability of write high quality (profitable) business in the near future. We estimate an FY22E adj. RoE of just 7.1%, and can at best assign a valuation of just 0.65x Dec-21E ABV (less 5% discount for expected 10.4% supply). We rate NIACL a SELL with a higher TP of Rs 130. Driven by a 1,230bps improvement in claims ratio, NIACL reported a better than expected adj. COR of 115.7% (-1,150bps YoY). NEP grew 11.7/4.9% YoY/QoQ to Rs 61.8bn. High investment income (Rs 22.3bn, +65.1% YoY) and low tax rate (17.3%) ensured a high APAT of Rs 10.7bn (vs. -1.1bn in 3QFY19). Post tax one-offs on account of provisioning for gratuity and pension dented profits by Rs 5.8bn to an RPAT of Rs 4.9bn. We retain a SELL with a higher TP of Rs 130.

We expect changing regulations in motor 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 short lived, as we expect IRDAI to clamp down on TP pricing restricting profitability. We believe 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). ICICIGIs 3QFY20 saw NEP growth of 16.4% YoY (ex crop 22.2% YoY, +10.3% vs. est.) to Rs 24.5bn, decline in COR (calc.) to 99.5% was also better than est., but investment yield of ~7.3% (-80/-114bps YoY/QoQ), weighed on APAT, which at Rs 2.94bn grew +23.0/-14.9% YoY/QoQ, (-2.6% vs. est.)

NIA is India's largest insurer but continues to make high underwriting losses (1H COR: 116.4%). We also note company's competitive positioning is only weakening and thus we remain concerned of company's ability of write high quality (profitable) business in the near future. We estimate an FY22E adj. RoE of just 7.2%, and can at best assign a valuation of just 0.6x Sep-21E ABV (less 10% discount for expected 10.4% supply). Given recent run up in price, we downgrade the stock to SELL with an unchanged TP of Rs 116. While NIA reported a better than expected COR of 118.3% (-610bps YoY), high NEP meant large underwriting losses of Rs 11.0bn (+9.4% YoY). Investment income (Rs 17.1bn, 11.6% yield) and low tax rate (12.2%) ensured a high PAT of Rs 5.6bn (+59.8/99.2% YoY/QoQ). We note improvement in core ICRs but our estimates already build the same and hence remain unchanged.

ICICIGI is best positioned to benefit from changing regulations in motor which will drive down both claims and tariffs. However, we expect high competitive intensity and lower motor TP tariffs (de-tariffication/price reduction) to restrict underwriting margins and investment profits. Accordingly, we rate ICICIGI a SELL with a TP of Rs 1,060 (Sep-21E P/E of 26x and a P/ABV of 5.6x). ICICIGIs 2QFY20 saw an NWP decline of 2.1% YoY to Rs 21.7bn, increase in COR (calc.) to 103.7% (+184bps YoY) as expenses increased while claims ratio declined, and lower investment yields of ~8.4% (-121/-111bps YoY/QoQ).