Ran too fast too soon? JP Morgan expects this public insurer stock to crack by 65%

Stock market news, stock market today: Shares of New India Assurance, a public general insurer, have skyrocketed in a short time. In a month, the stock has gained a massive 74 per cent. On Friday (December 1), in the morning deals, the stock, however, slipped 7 per cent to the day's low of Rs 237 per share.
 
The rally in most PSU insurers comes at a time when reports say that the outlook on the insurance industry has turned positive from stable.
 
From the company's investor meeting, which took place on November 29, it is confirmed that the upside catalysts for underwriting performance and the pricing outlook are limited. Further, there is a view that the combined ratio for FY24 will come in at 121 per cent, while the company targeted it at 115 per cent.
 
The combined ratio is calculated by adding the expense ratio as well as the loss ratio. The lower the ratio, the more profitable the company is, and vice versa.

Alongside, the global brokerage house JP Morgan maintains an underweight view on the counter with a target price of Rs 90. This means a substantial cut of 65 per cent from the last closing price of Rs 254.85 apiece. The brokerage said that as the company's return on equity (ROE) in the last three years has ranged between 1 and 5 per cent, it indicates that the capital allocation at the insurer remains inefficient.

This is even as the company has emerged as the leader in major segments in terms of gross direct premium income underwritten up to H1FY24.

Even under new accounting, it is not likely to warrant a better capital return outlook, noted the brokerage. We would not chase the rally at this level (116x FY25E P/E, 2.1x P/B). We suggest revisiting GIC RE over New India/LIC due to GIC RE’s upside risk in an overseas underwriting turnaround, continued price-hardening, and ongoing recalibration efforts, added the foreign brokerage.