Shares of ICICI Bank hit a four-month low of Rs 1,201, falling 2.6 per cent on the BSE in Tuesday’s intra-day trade, underperforming the market in otherwise a weak market. The share price of the private sector lender is trading at its lowest level since September 9, 2024. It corrected 11 per cent from its previous month high of Rs 1,350.20 touched on December 16. The stock had hit a record high of Rs 1,361.35 on September 20, 2024.
ICICI Bank’s board is scheduled to meet on Saturday, January 25, 2025 to consider and approve the December quarter (Q3FY25) results.
The bank is well-positioned with superior margins, strong return on equity (RoE), asset quality, contingency buffers, and robust capitalisation in this upcycle. A strong liability franchise indicates a robust business outlook for the bank. The brokerage firms have outperform/buy rating on ICICI Bank with upside of up to 37 per cent.
A steady loan growth trajectory and stable asset quality would help the bank to sustain stable return ratios. Net interest margins (NIMs) are expected to be stable in H2FY2025 versus H1FY2025 until the rate cut cycle starts. Lower interest rate cycle will negatively impact margins, as ~51 per cent of the loan book is linked to repo, which will get repriced immediately, rest ~17 per cent is linked to MCLR and ~32 per cent is fixed rate book.
Operating expenses (Opex) growth would lag income growth, which would ultimately offset the impact of lower NIM. The asset-quality outlook continues to remain stable as there are no signs of alarming stress along with higher contingent provisions, which should keep credit cost lower. Stress in the unsecured retail segment is expected to stabilise over the next couple of quarters, according to Mirae Asset Sharekhan.
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Overall, the brokerage firm sees ICICI Bank relatively well-placed in the sector in terms of asset quality/growth and profitability. The bank continues to outperform peers on most of the parameters exhibiting strong franchise strength; and thus, the current valuation premium to peers is likely to sustain.
The brokerage firm believes the bank is likely to sustain return on assets (RoA) over ~2 per cent in the near to medium-term. The bank has been delivering predictable earnings with healthy growth on a sustained basis, which is a key positive, it added.
Meanwhile, ICICI Bank's balance sheet remains protected by heavy excess provisioning and healthy capitalisation. It currently also enjoys a high current account and savings account (CASA) as a proportion of net demand and time liabilities (NDTL), and therefore, a funding cost edge over its nearest competitors. This has helped the bank gather loan market share in prime categories and emerge as a preferred choice for investors within Indian banking names, according to analysts at BNP Paribas Exane Research.
The bank's tech and digital investment efforts appear to have set the benchmark among large private-bank peers. While the iMobile app's popularity provides us with some evidence of the bank's tech and digital focus, its efforts span segments and functions. Its annualised ROE has broken through the 18 per cent barrier in recent quarters, partly aided by low credit costs. It is trading at 2.6x 1-year forward core P/BV and is still attractive vis-à-vis what the brokerage firm see as a sustainable core ROE of 17.5-18.5 per cent. It has ‘outperform’ rating on the stock with a target price of Rs 1,640 per share.
ICICI Bank has lagged its peer HDFC Bank in incremental CASA mobilisation in the past two years. Even though its current edge is large, any closing of the gap will dilute its cost of funds advantage. This large advantage is critical to dominating prime asset categories and having a profitability (NIM) buffer vis-à-vis competition are key risks to the downside, BNP Paribas said.
ICICI Bank is set for superior performance, driven by healthy loan growth, strong asset quality, and industry-leading return ratios. While Motilal Oswal Financial Services (MOFSL) anticipates margins to remain in pressure in the near term due to a potential rate cut and rising costs of funds, the bank's operating leverage is emerging as a key driver of earnings growth.
With robust deposit inflows and a favourable credit-deposit ratio (CD ratio)—the lowest among large private banks—ICICI Bank is well-positioned for profitable growth. Its asset quality outlook remains steady, supported by robust underwriting standards, strong PCR, and a high contingency buffer of ~1 per cent of loans, the brokerage firm said in a management meet update report dated December 11, 2024. ICICI Bank remains Motilal Oswal’s top buy in the sector and it has reiterated ‘Buy’ rating with a target price of Rs 1,550, based on 2.7x Sep’26E ABV.