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Jefferies rates ICICI Bank as best banking investment globally, sees 50% upside for stock

The global brookerage sees 50 per cent upside in base case and 64 per cent in bull case

June 27, 2022 / 10:45 AM IST
ICICI Securities: Aditya Birla SL Dividend Yield, HDFC Dividend Yield, Sundaram Dividend Yield, Tata Dividend Yield and UTI Dividend Yield Fund held the stock of ICICI Securities in their portfolio. Stock brokers Axis Direct and Motilal Oswal gave 'buy' recommendations on the stock.

ICICI Securities: Aditya Birla SL Dividend Yield, HDFC Dividend Yield, Sundaram Dividend Yield, Tata Dividend Yield and UTI Dividend Yield Fund held the stock of ICICI Securities in their portfolio. Stock brokers Axis Direct and Motilal Oswal gave 'buy' recommendations on the stock.

Global brokerage house Jefferies has rated ICICI Bank as one of the top banks across the world that offer the best risk-reward ratio with a 50 percent upside potential for the next 12 months.

“A comparison of global banks across RoA (return on assets) and PB (price to book) in FY23/CY22 shows that ICICI Bank offers among the best risk/reward. It trades at 1.1x on PB/RoA, as its one-year forward core banking PB of 2x is well justified by its RoA of 1.8-1.9 percent, which also has a potential upside risk,” the brokerage said.

“In fact, among global banks that are near 1x on PB/RoA, ICICI Bank offers among the highest RoA,” it said in a report.

Jefferies has set a 12-month target of Rs 1,070 on the stock in the base case, and said it can even touch Rs 1,170 if a few things work in ICICI Bank’s favour. A potential upside of 64 percent from the current levels will be a big push for the stock. In a bear market scenario, it has set the target at Rs 660.

The lender is better placed given lower exposure to riskier sectors and manageable share of SME or unsecured retail loans. It also has among the strongest deposit franchises and, thus, should benefit from deposit polarisation, the report said.

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ICICI Bank currently trades at a price-to-earnings ratio of 21 times and price-to-book ratio of about three times. In 2022, the stock was down nearly 7 percent but in the last five years it has jumped 2.5 times.

It has outperformed many of its peers, both in terms of stock performance and financial performance, in the recent years and also edged past its biggest competitor HDFC Bank, turning street opinion in its favour.

Analysts believe that there are multiple catalysts present for the bank such as easing of Covid restrictions and normalisation of lending activity, unsecured retail portfolio asset quality holding up better than expected, deposit rate cuts and higher CASA as benefits of deposit polarisation and early resolution of stressed assets.

Jefferies sees ICICI Bank averaging a 17 percent annual growth rate in profit over FY22-24 and a 16 percent return on equity (RoE). “An area of potential positive surprise is its overseas NIMs, which could expand, as the global liquidity market in tightening, which could lead to higher margins in the medium term for lenders,” it said.

ICICI Bank is placed suitably to leverage on the uptick in bank credit growth that has improved from 8-9 percent to 12 percent on-year. It could also leverage an uptick in capex cycle given its domain expertise in project financing.

Domestic analysts have similar views. They see the stock rising in the range of 20-50 percent in the next 12 months.

 
Shubham Raj
first published: Jun 27, 2022 09:47 am
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