Balance-sheet of the bank has now strengthened remarkably over the years with lower concentration of large borrowers, rise in granular retail loans and increase in lending to better rated corporates, LKP said.
ICICI Bank share price gained 0.92 percent intraday on November 20 as brokerage house Macquarie remained bullish on the stock and raised target price by 25 percent on strong return on equity (RoE) going ahead.
The stock shot up 44 percent in the last nine months and was quoting at Rs 495.35, up Rs 2.20, or 0.45 percent on the BSE at 1036 hours.
While maintaining outperform on ICICI Bank, Macquarie raised target price to Rs 615 (from Rs 490 earlier) which implies a 25 percent potential upside from the current levels.
"The bank is our marquee idea and the top pick in financial space. It is focussing on operating profit and containing provisions to 20-25 percent of pre-provision operating profit," said the global brokerage house.
The research firm believes the bank would not require any money for the next 18-24 months and its longer-term re-rating will be driven by its RoE trajectory.
"We build in a long-term sustainable RoE of 18 percent in our model," said Macquarie.
LKP Securities also foresees a big turnaround in the earnings on the back of lower credit cost of 1.5 percent in FY20e and 1 percent in longer-term, gradual margin improvement and pickup in the loan growth.
It expects bank's RoE to improve to 15 percent in FY22 from 3.9 percent in FY19.
"Unlike in the past during FY15-19 where PAT had de-grown at a CAGR of 22 percent, we expect PAT to grow by 141 percent in FY20, 63 percent in FY21 and 24 percent in FY22 i.e. at a CAGR of around 70 percent over FY19-22. Comfortable CAR 13.2 percent and high PCR of more than 70 percent reduces any immediate risk of dilution. Subsidiaries are increasing in size and stature gaining market share given favourable demographics and their presence in important respective financial service space. Long-term value un-locking in subsidiaries could be immense," it detailed.
LKP valued the bank at Rs 598 (implying 21 percent potential upside from current levels) with a buy rating, assigning multiple of 2.6x FY21e ABV of the bank and valuing the subsidiaries at Rs 138 post 15 percent holding company discount. The brokerage expects re-rating of the bank to continue in coming quarters as well.
The balance sheet of the bank has now strengthened remarkably over the years with lower concentration of large borrowers, rise in granular retail loans and increase in lending to better-rated corporates, the research firm said, adding with a strong balance sheet, the bank is now well-placed to participate in multiyear strong credit growth.
Recent Supreme Court landmark judgement on Essar Steel case has upheld the supremacy of the Committee of Creditors (CoC).
"This is a major relief to all the banks including ICICI Bank which has one the largest exposure to the said company. Banks are likely to get nearly 90 percent of the Rs 42,000 crore exposure," LKP said.Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.LIVE NOW... Video series on How to Double Your Monthly Income... where Rahul Shah, Ex-Swiss Investment Banker and one of India's leading experts on wealth building, reveals his secret strategies for the first time ever. Register here to watch it for FREE.