Markets
ICICI Lombard stock gets some relief after extended dull phase
Summary
The bank’s board of directors has approved an additional increase in stake in ICICI Lombard in multiple tranches up to 4%. This is subject to Reserve Bank of India’s (RBI) approval.Investors in shares of ICICI Lombard General Insurance Co. Ltd have heaved a sigh of relief with ICICI Bank set to raise its stake in the general insurance company. The bank’s board of directors has approved an additional increase in stake in ICICI Lombard in multiple tranches up to 4%. This is subject to Reserve Bank of India’s (RBI) approval. Out of this, at least 2.5% stake would be acquired before 9 September 2024. As on March-end, ICICI Bank held a 48% stake in ICICI Lombard.
Earlier, as per the RBI’s regulations, ICICI Bank was expected to reduce its stake in ICICI Lombard to less than 30%. Note that, the stake held by promoters in insurance companies can be either over 50% or less than 30%.
Post-merger with Bharti AXA, ICICI Bank’s stake in ICICI Lombard had dropped to 48% due to the fresh issue of shares. Given this, ICICI Lombard’s investors were worried about stake dilution. Thus, the latest announcement of ICICI Bank planning to raise its stake removes a key overhang on the stock.Accordingly, ICICI Lombard’s shares rose 8% on Monday.
“Post-announcement of the merger between HDFC Bank and HDFC Ltd, the stake of the merged entity in HDFC Life would have stood at 48.65%. Akin to the reaction for ICICI Lombard stock, HDFC Life too underwent a de-rating," said analysts from Motilal Oswal Financial Services in a note. “However, in Apr ’23, the RBI offered relaxation to the HDFC-HDFC Bank merged entity to own more than 50% stake in HDFC Life. This sets precedence for ICICI Bank to enhance its stake in ICICI Lombard," they added.
For ICICI Lombard, the focus now turns to the performance. Stiff competitive intensity, particularly in the motor segment, could dent its performance.
However, the company has taken measures to expand to other product categories, including health and within the motor insurance segment which are likely to yield results.
In the past year, the stock is down by 5.5%, underperforming the Nifty Financial Services index. Sujal Kumar, analyst, PhillipCapital India, said, “The company’s ROE historically had been over 20% but it’s now below this level. How this shapes up will be key for the stock."
Further, another key event to watch out for is the succession planning at ICICI Lombard. “The current CEO’s term is ending in May 2024, and he had been with the company for nearly 15 years. Even if he is to retire next year, there is a good base built, for whomever may take over next," said Avinash Singh, analyst at Emkay Global Financial Services.
