Motilal Oswal Financial Services’ research report on ICICI Bank and their recommendation to buy with a target price of Rs 1150.
ICICI Bank is making significant strides towards sustainable growth, as highlighted in its Annual Report. Notably, the bank has bolstered its contingency buffers and implemented robust underwriting and risk-monitoring mechanisms, reinforcing the strength of its balance sheet.
Retail Franchise and Liabilities
The bank has further strengthened its retail franchise, registering an impressive 23% Year-over-Year (YoY) growth, particularly in the home loans segment. Additionally, ICICI Bank has maintained robust traction in its liabilities, boasting one of the highest proportions of retail deposits and a strong Current Account Savings Account (CASA) mix.
SME and Business Banking Portfolio
The bank’s SME and Business Banking portfolio have grown significantly, with a 19% YoY and 35% YoY increase respectively in FY23. This has led to a rise in their mix to 12% of loans, up from 8% in FY18.
Digital Innovation
ICICI Bank continues to invest in digital capabilities and has introduced a range of new products. This includes offerings like iLens, Insta Export Packing Credit, and Neo Remittance System, alongside enhancements to InstaBIZ and Merchant Stack tools. This commitment to digitalization enables the bank to provide a superior digital experience to corporates across various industries.
Risk Management
The bank has made notable improvements in risk management, evident from the concentration of the top 20 advances/exposures improving by 156 basis points to 10.3% in FY23. On the liability side, the concentration of the top 20 depositors has improved by approximately 179 basis points to 3.5%.
Strong Position for Growth
As the bank prepares for a new growth cycle, it is well-positioned with a superior margin, strong asset quality, and robust capitalization levels. Projections estimate ICICI Bank to deliver Return on Assets (RoA) of 2.2% and Return on Equity (RoE) of 17.7% in FY25.
Earnings Growth
While earnings growth is expected to moderate to a 17% Compound Annual Growth Rate (CAGR) over FY23-25, this is primarily influenced by a decline in margins and limited operational expenditure (opex) and credit cost levers.
Recommendation and Target Price
In light of these factors, Motilal Oswal Financial Services maintains a “BUY” rating on ICICI Bank and sets a Sum of the Parts (SoTP)-based target price of INR 1,150, which is equivalent to 2.6 times FY25 Estimated Adjusted Book Value (ABV).
In conclusion, ICICI Bank’s strong performance, strategic focus on retail growth, robust liability management, and digital innovations make it an appealing choice for investors. The “BUY” rating aligns with their positive outlook for the bank, and the target price of Rs 1150 suggests potential for further growth.
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