ICICI Bank shares may be offering the best risk-reward among global banking stocks, said analysts at Jefferies in a recent note. The global brokerage firm has reiterated its ‘Buy’ rating on the scrip with a target price of Rs 1,070 per share, implying 50% potential rally going forward. “ICICI Bank is not only well poised to leverage on growth pickup in Indian bank credit from 8-9% to 12% and the ramp-up of SME vertical, but the recent correction, coupled with high ROA, arguably makes it among the best risk/reward across global banks,” Jefferies said. The stock hit a low of Rs 716 per share on Monday.
Jefferies said that they believe ROA is a better reflection of core profitability than ROE, which can be significantly influenced by leverage. “ICICI Bank achieved peer-best ROA level of 2.1% in 4QFY22, even as we believe that sustainable level could be a tad lower around 1.8-1.9% as credit costs normalise,” they said. When compared to global peers, across ROA and PB (in FY23/CY22) ICICI Bank offers among the best risk/reward. “It trades at 1.1x on PB/ROA, as its 1yr forward core banking PB of 2x is well justified by its ROA of 1.8-1.9%, which also has potential upside risk.”
Jefferies analysts also see the potential for ICICI Bank to leverage an uptick in Capex cycle given its domain expertise in project financing.
ICICI Bank is projected to deliver a 17% CAGR in profit over FY22-24 and ROE of 16%. “An area of potential positive surprise is its overseas NIMs, which could expand, as the global liquidity market has tightened up, which could lead to higher margins in the medium term for lenders,” the report noted.
The base case scenario sees ICICI Bank stock reach the target price of Rs 1,070 per share while upside scenario target price is at Rs 1,170 per share. In such a scenario loan growth is projected at 20% CAGR and Fee income CAGR at 21% with GNPA of 3% and NNPA of 0.5% in FY23E. Bear case scenario puts the target price at Rs 660 per share.
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