When stock prices are falling, the best mindset to have is a long term one. High quality stocks such as ICICI Lombard General Insurance Company Limited has fared well over time in a fickle stock market, which is why I want to bring it into light amongst all the chaos. Below I take a look at three key features of what makes a robust defensive stock investment: its size, financial health and track record.
ICICI Lombard General Insurance Company Limited provides various general insurance products in India. Established in 2000, and led by CEO Bhargav Dasgupta, the company now has 10.20k employees and with the market cap of ₹537b, it falls under the mid-cap group. Size matters. The bigger the company is, the more well-resourced it is. The more money it produces from its operations which means it is less reliant on external funding. When times are bad in the market, being self-sufficient is extremely important as you can continue to operate at your own pace. Therefore, large cap companies are a great bet to invest in when you’re heading to the bottom of the cycle.
With ₹4.9b debt on its books, ICICI Lombard General Insurance has to pay interest periodically. This means it needs to have enough cash on hand to meet these upcoming expenses. ICICI Lombard General Insurance generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 41.48x, which is well-above the minimum requirement of 3x. Furthermore, its operating cash flows amply covers its total debt by over 2x, much higher than the safe minimum of 0.2x. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning ICICIGI’s financial strength will continue to let it thrive in a fickle market.
ICICIGI’s profit growth over the previous five years has been positive, with an average annual rate of 20%, outpacing the industry growth rate of 9.8%. It has also returned an ROE of 19% recently, above the industry return of 17%. This consistent market outperformance illustrates a robust track record of delivering strong returns over a number of years, increasing my conviction in ICICI Lombard General Insurance as an investment over the long run.
Next Steps:ICICI Lombard General Insurance makes for a robust long-term investment based on its scale, financial health and track record. Remember, in bear markets, sell-offs can be unjustified. Ask yourself, has anything really changed with ICICI Lombard General Insurance? If not, then why not scoop it up at a discount? Lining your portfolio with a few well-established companies can reduce your risk and help you scale your wealth in the long run. One thing you should remember though, is to do your homework. Do your own research, come up with your point of view. Below is a list I’ve put together of other things you should consider before you buy:
- Future Outlook: What are well-informed industry analysts predicting for ICICIGI’s future growth? Take a look at our free research report of analyst consensus for ICICIGI’s outlook.
- Valuation: What is ICICIGI worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ICICIGI is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.