ICICI Bank Ltd. share price target

ICICI Bank continues to be our preferred pick and is among the best plays on the improving trend in asset-quality issues. Revival of earnings growth and improvement in advances book and return ratios (ROEs to improve to 15% in FY2022E from ~3% in FY2019A) are key re-rating triggers for the stock. In this note, we have introduced FY2022E earnings estimates and are accordingly rolling over our price target (PT) on FY2022E book value estimates. We retain our Buy rating on the stock with a revised PT of Rs. 630 (2.3x its standalone...

Our constructive stance on ICICIBC (for a while now) has been mostly premised on the reduction in stress pools, consequently lower provisions and (therefore) earnings expansion. The visible risk-consciousness in corporate lending (and limited exposure to recent defaulters) reconfirms our stance on asset quality. The action on the digital and retail fronts sets the bank up for strong, granular and efficient growth. We think ICICIBC now merits a hike in valuation multiple from 2.0 to 2.2x. Maintain BUY. Our revised SOTP is Rs 565 (2.2x Dec-21E core ABV of Rs 200 and sub-value of Rs 125). At the recently concluded ICICIBC Analyst Day, we noted a common desire (and plan) across verticals to drive up risk-adjusted RoAE. The primary drivers of this expansion are (1) Improving oplev due to digitalisation of processes, (2) Expanding margins via faster growth of higher yielding retail loans, and (3) Reducing credit costs by following a calibrated growth path. The emphasis on digital capacity building seems to be a cross-company imperative.

Refer to important disclosures at the end of this report Transforming into a strong retail-cumdigital bank; maintain Buy ICICI Bank has re-emerged as a strong retail bank over the years and has now showcased its cutting-edge in-built and impressive digital capabilities not only in retail but also in corporate, commercial and transactional/payment banking. The entire bank has imbibed the principle of One Bank, One RoE' with a focus on riskcalibrated profitable growth coupled with a strong digital edge. It will continue with branch...

ICICIBC held an analyst day to showcase its digital capabilities being placed at the core and leveraging the same across business segments & operations of the bank. Bank emphasized its journey of making One Bank One ROE as a principle for every business enabled through high focus on core operating profit. This will be led by high use of digital, technology & data analytics helping lower costs, maximize risk adjusted NIMs and enable customized offerings to increase stickiness. We have been witnessing some of the initiatives play out in past couple of quarters with improved market share in...

ICICIBC has started offering online credit cards to pre-approved customers, while the effective use of technology has facilitated a significant improvement in opex and delinquency trends across key product segments. ICICIBC suggested for robust traction in its unsecured loans business it has reported a 41% CAGR since FY15 and will continue growing strongly as the market share in these segments is not very high. ICICIBC has built customized digital solutions to accelerate growth in business banking and expects this segment to grow at 35-40% over the next few years. The bank follows four levers of business based on risks, (ii) customized product offering, (iii) partnership with fin techs and (iv) strong distribution. ICICI Bank ICICIBC is engaging with various start-ups to provide improved customer proposition, penetrate into newer markets and reduce operating costs across product segments. It is making equity investments into high growth and disruptive fintech start-ups which helps build cutting-edge customized banking solutions for customers and improves competitive positioning.

We forsee a big turnaround in the earnings on the back of lower credit cost of 1.5% in FY20e and 1% in longer term, gradual margin improvement and pickup in the loan growth. We expect ROE to improve to 15% in FY22e from 3.9% in FY19. Unlike in the past during FY15-19 where PAT had degrown at a CAGR of 22%, we expect PAT to grow by 141% in FY20e, 63% in FY21e and 24% in FY22e i.e. at a CAGR of ~70% over FY19-22e. Comfortable CAR 13.2% and high PCR of >70% reduces any immediate risk of dilution. Subsidiaries are increasing in size and stature gaining market share...

In Q2FY20 ICICI Bank (ICICIBC) continued to improve on its asset quality supported by stable NIMs and steady loan growth. Bank reported 25% YoY growth in NII led by NIMs, up 34bps YoY, and decent loan book growth of ~13%.

Gross loans grew 12.6% YoY to Rs. 613,359cr, driven by home loans (up 18.6% YoY) and personal loans (up 50.6% YoY). Net Interest Margin was at 3.64% in Q2FY20 up 31 bps YoY. GNPA/NNPA ratio stood at 6.4%/1.6% in Q1FY20 (vs. 8.5%/3.7% in Q2FY19) signaling improving asset quality. Slippages were as per expectations with total slippages for Q2FY20 at Rs. 2,482cr (vs. Rs. 2,779cr in Q1FY20). On a healthy capital position, strong digital growth and improving asset...

of accumulated deferred tax asset of Rs 2920 crore. However, excluding the impact of one-time additional charge due to re-measurement of accumulated deferred tax asset, profit after tax would have been Rs 3575 crore in Q2FY2020. The bank has exhibited healthy performance across various parameters including net interest income growth of 26%, fee income growth of 16%, higher net interest margins of 3.64%,...