Analysts see better run for ICICI Bank stock after strong 2019 performance

India’s top performing bank stock is getting more love from analysts even after its strong run of gains in 2019.

ICICI Bank Ltd., with a 45% climb this year that’s the most among a gauge of the nation’s financial stocks, has a recommendation consensus of 4.87 on a Bloomberg scale where 5 is a unanimous buy. That’s close to its highest reading in at least a decade. The lender remains a buy for all but one of the 57 brokerages compiled by Bloomberg.

“The stock has done well, yet we think the scope for meaningful re-rating over the next 12-18 months is high,” Anil Agarwal, an analyst with Morgan Stanley, wrote in a note on Tuesday, after attending the bank’s first analyst day in more than a decade.

The view comes amid a deteriorating economic environment where growth has slipped to the slowest pace in six years and the financial system continues to recover from a prolonged period of loan losses and a crisis at shadow banks.

ICICI Bank has also had its share of upheavals. Just over a year ago, Sandeep Bakhshi took over as chief executive officer after Chanda Kochhar resigned following allegations of corporate governance violations.

Here’s a roundup of brokerage views on why they think ICICI shares are a buy.
 

Nomura (Adarsh Parasrampuria)

One bank, one RoE target well entrenched; expect ROE of 16%-17% in next 12-18 months compared with bank’s guidance of 15% by 1QFY21

Bank can continue to grow in most types of retail loans as market share is only ~8% of system’s assets in category

Estimate pre-provisioning operating profit, or PPoP, to record 19% CAGR over FY19-22

Expect re-rating to continue with improving quality of earnings and lower credit cost

Ambit (Pankaj Agarwal)

Digitization in retail banking to help improve PPoP and ROE by reducing operating expenditure, cost of acquisition

Linking top management incentives to overall performance of bank could lead to better performance

Bank can achieve 16.5% ROE by FY21; remains buy with PT of 526 rupees

Citigroup (Manish Shukla)

Bank is picking up business from better-rated companies

Emphasis on shorter and medium-term loans

Reduced chances of big loans turning bad, diverse range of products to allow it to grow balance sheet

Share price offers a reasonable risk-return trade-off; business offers meaningful upside in medium term

ICICI Bank is top sector pick; PT raised to 600 rupees from 510.40 rupees

Morgan Stanley (Anil Agarwal)

Core PPoP likely to compound at above 20% for multiple years

Decline in credit cost to drive strong earnings, ROE expansion

Rated overweight with PT 775 rupees