Emkay Global Financial has given Buy recommendation for ICICI Bank with a target price of Rs. 1025 in its research report issued on Apr 24, 2022

Emkay Global Financial’s report on ICICI Bank

ICICI Bank reported a strong 17% beat on PAT at Rs70bn (up 59% yoy) with all-time high RoA of ~2%/RoE of ~17%, mainly driven by lower provisions and continued healthy core profitability (19% vs. HDFCB’s 10% yoy). Asset quality continues to trend well, with the GNPA ratio down to 3.6%, while the bank carries a strong specific PCR of 79.5% and a contingent buffer of 0.8% of loans, which should support profitability, going forward. Overall credit growth remained healthy at 17% yoy/6% qoq, mainly driven by retail, SME and business banking, which is reflected in the bank’s healthy margin performance (domestic @ ~4.1% vs. HDFCB @ 4.2%). There is a change in KMP with the resignation of corporate head Mrs. Vishakha Mulye who is being replaced by Mr. Anup Bagchi (retail head) and the elevation of CFO Mr. Rakesh Jha as ED-Retail Banking. Given top management’s approach to provide all-around exposure to managers, which we believe is long-term positive, we hope for minimal near-term disruption with retail growth largely being self-sustaining now. Factoring in healthy credit growth (19-21%), better margins (nearly 70% of asset portfolio on floating rate) and lower LLP (better asset quality + part usage of contingent buffer), we upgrade FY22-24E EPS by ~3% and RoE to ~16-17%. We trim our standalone bank target multiple to 2.7x from 2.9x, taking into account higher CoE across banks. However, adjusted for better earnings and rolling fwd target multiple to FY24E ABV from Dec’23, we retain Buy with TP of Rs1,025.

Outlook

ICICI, trading at 1.8x FY24E ABV, has narrowed the valuation gap with close peer HDFCB (standalone: 2.2x/merged: 2x) at a faster-than-expected pace due to the former’s strong core performance, with the latter struggling with management changes, tech issues and now the merger overhang. The valuation gap has further room for reduction, as ICICI sustains its core performance and HDFCB faces merger drag. ICICI’s top management premium has yet to be realized, and HDFCB may struggle to reclaim the management premium it had in the past.

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