The stock hit its record high of ₹1,199.35 and its market cap crossed $100 billion in intra-day deals today. The stock has now risen over 33 percent from its 52-week low of ₹898.85, hit on October 26, 2023.
“While we estimate margins to remain range-bound in the near term, the operating leverage is emerging as a lever to support earnings growth. The bank is witnessing healthy deposit inflow, while a benign CD ratio (lowest among large private banks) places it well to focus on profitable growth. The asset quality outlook remains robust as the bank maintains strong PCR and a high contingency buffer (1.1% of loans),” explained the brokerage. It estimates ICICI Bank will deliver a PPoP/PAT CAGR of 16.7 percent/13.7 percent over FY24-26E, leading to RoA/RoE of 2.2 percent/17.7 percent.
ICICI Bank has already gained almost 29 percent in the last 1 year and 20 percent in 2024 YTD. The stock has given positive returns in 5 of the 6 months so far this year. It rose 6.7 percent in June to date after a 2.5 percent fall in May. But, it was in the green for the first 4 months of 2024. Meanwhile, in the long term – 3 years – as well, the stock has surged over 84 percent.
Investment Rationale
Loan growth to remain robust: The brokerage noted that ICICI Bank is consistently outpacing system credit growth, driven by higher growth in retail and SME segments, while wholesale growth remains modest. The bank reported a 17 percent CAGR in loans over FY22-24, with a diversified and granular portfolio. Data analytics-driven processes for onboarding, credit assessment, and customer monitoring support this growth. Unsecured loans (credit cards + personal loans) now make up 14 percent of the portfolio, mainly extended to existing, salaried customers. Moving forward, the bank will continue to focus on risk-calibrated growth in SME, business banking, and retail while tightening underwriting in unsecured lending to maintain portfolio quality, said the brokerage.
Liability momentum healthy: ICICI Bank delivered industry-leading deposit growth of 20 percent in FY24. As per MOSL, strategic initiatives in digital banking and branch network expansion are set to sustain this momentum. It added that continuous improvements in digital platforms and simplified processes have enhanced customer experience. The bank has launched several digital innovations, such as iLens, Insta Export Packing Credit, InstaBIZ, and Merchant Stack, offering customised solutions, data-driven cross-sell and up-sell, and value-added features. This 360-degree customer-centric approach is boosting customer acquisition and engagement levels, highlighted the brokerage.
NIMs to remain range-bound in the near term: MOSL pointed out that ICICI Bank is focused on strengthening its retail deposit base, despite a moderation in the CASA mix to 42.2 percent in FY24 (39 percent on average) due to a higher rate differential. The management aims to maintain a stable deposit profile to control funding costs. With a conservative Loan-to-Deposit Ratio (LDR) of 82.3 percent on its domestic book, the bank is well-positioned for loan growth, it mentioned. MOSL further observed that its margins have decreased by 50 basis points to 4.4 percent over the past year, but the pace of compression slowed to a 3 basis point decline in 4QFY24. The bank expects margins to remain range-bound with a slight downside bias due to elevated term deposit rates and residual repricing, it said.
ICICI Bank’s transformation under competent management: Under Mr. Bakhshi’s leadership, ICICI Bank has transformed its HR policies, shifting focus from individual to team performance. Despite industry-wide attrition challenges, the bank has built a strong leadership bench and emphasises structured processes over individual star performers. This “One Bank, One Team” approach has driven collective efforts towards organisational goals, delivering consistently strong results. The management’s focus on a cohesive culture supports sustainable and profitable growth, reinforcing ICICI Bank’s position as a resilient and successful institution in the banking sector, stated MOSL.
Asset quality remains robust: ICICI Bank has significantly improved its asset quality, achieving a best-in-class PCR of 81 percent and holding contingent provisions of ₹13,100 crore (1.1 percent of loans), ensuring low credit costs, informed MOSL. Enhanced underwriting through analytics and controlled restructuring has also kept slippages in check. It further added that the lender has refined credit filters and increased pricing for new personal loans as a risk measure, though no adverse trends are seen in the unsecured portfolio. Investments in technology and analytics have helped maintain control over slippages. GNPA/NNPA ratios are projected to moderate to 2.17 percent/0.28 percent by FY26E, with credit costs rising to 0.6 percent by FY26E, predicted MOSL.
Fee growth steady; operating leverage emerging as a key lever: ICICI Bank achieved a 16 percent growth in core fees in FY24, driven by initiatives in retail, SME, and business banking, which contributed 78 percent of overall fees. The bank’s focus on transaction banking, forex services, and derivatives, along with increased market share in credit cards, bolstered fee income. Data analytics enhanced digital transactions and a corporate portfolio recovery is expected to spur further fee growth. Despite a 22 percent average YoY growth in opex over the past three years, the C/I ratio remains stable at 40 percent. The bank aims for 15 percent YoY growth in opex over FY24-26E, leveraging technology to improve productivity, noted MOSL.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 25 Jun 2024, 04:30 PM IST
