Global brokerage house Jefferies, in a recent note, said that ICICI Bank has the best risk-to-reward ratio among all global banks and has a set target price of ₹1,070 for the stock, indicating an upside of 50 percent from its June 24th close of ₹713.
"ICICI Bank offers among the best risk/reward ratios among global banks in terms of RoA (return on assets) and PB (price to book) in FY23/CY22, according to the comparison. As its one-year forward core banking PB of 2x is fully supported by its RoA of 1.8-1.9 percent, which also has a possible upside risk, it trades at 1.1x on PB/RoA," noted the brokerage. In reality, it said, ICICI Bank offers among the greatest RoA among global banks that are near 1x on PB/RoA.
In the base case scenario, Jefferies has set a 12-month target price of ₹1,070 for the stock. However, it stated that if a few things go in ICICI Bank's favour, it can hit ₹1,170 (in the bull case scenario), indicating a possible upside of 64 percent from the current levels. Meanwhile, Jefferies' bear case scenario has a target price of ₹660 for the stock.
The brokerage noted that ICICI Bank is not only well poised to leverage on growth pickup in Indian bank credit from 8-9 percent to 12 percent and the ramp-up of SME vertical, but also from the recent correction, coupled with high ROA.
It has outperformed many of its peers, both in terms of stock performance and financial performance, in recent years and also edged past its biggest competitor HDFC Bank, turning street opinion in its favour, added Jefferies.
The scrip has risen around 10 percent in the last one year. In comparison, Nifty Bank has declined 4 percent while the Nifty50 index is flat in this period. Among peers as well, the stock has outperformed all Nifty bank constituents, except AU Small Finance Bank (up 20 percent in 1 year). Among other private lenders, HDFC Bank has lost over 10 percent while Axis Bank and IndusInd Bank are down over 15 percent each in this time. Kotak Bank also lost over 2 percent.
However, in 2022 so far, ICICI Bank has lost around 7 percent.
As per Jefferies, the lender is better placed due to its lower exposure to riskier sectors or unsecured retail loans. ICICI Bank also has the strongest deposit franchises and should reap the benefit of the same, added the brokerage.
ICICI Bank's presence across segments of credit — corporate (working capital, capex) and retail and its strong deposit franchise — Casa ratio of 49 percent, funding cost of below 4 percent, and retail term-deposit rate at 5.5 percent position it well on liquidity, it said.
"We think the bank's growth will continue to be boosted by the ramp-up of the SME/ BB vertical where credit grew 39 percent YoY in FY22, and we see over 25 percent CAGR over the next two years. It could also leverage an uptick in capex cycle given its domain expertise in project financing," stated Jefferies.
It also sees multiple positive catalysts for the lender like a strong presence across the various segments, a solid franchise network, restoration of normalcy in the lending activities, sound asset quality and a higher CASA ratio.
An area of potential positive surprise is its overseas NIMs, which could expand, as the global liquidity market has tightened and this could lead to higher margins in the medium term, noted Jefferies.
Jefferies sees ICICI Bank delivering 17 percent CAGR in profit over FY22-24 and ROE of 16 percent.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
