CLSA retains buy on ICICI Bank, sees favourable risk-reward

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26 Aug, 2025 12:21

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Brokerage CLSA maintains its buy rating on ICICI Bank, the country's largest private sector lender, with a target price of Rs 440 apiece. It sees a favourable risk-reward profile.

"Sensitivity analysis indicates that for non-performing loans (NPLs) 10 percent higher than we expect, the impact would be 2 percent on earnings and even less on book value. Even in a higher-stress situation, i.e. slippages rise by 40-50 percent over FY16-17CL, ICICI would deliver 16 percent return on equity (ROE), suggesting a fair PB of 1.4x and implying around 10 percent downside," the brokerage explains in its note.

After a 19 percent correction from its peak, ICICI Bank trades near its five-year-average adjusted price-to-book (PB) of 1.7x (12-month forward) despite an over-600 basis points expansion in ROE over this period. Compared to peers, its valuation discount has widened to 30-50 percent even though its profitability (return on assets-ROA of 1.8 percent) is comparable.

The underperformance was partly due to higher stress on asset quality, says CLSA but it believes that current valuations offer an attractive entry point. The bank’s strong deposit franchise and focus on derisking its loan-book (through lending to higher-rated corporates and PSUs) will help to mitigate risks, it adds.

According to the brokerage, deleveraging, cashflow from the commercialisation of projects and refinancing of loans (under the central bank’s 5/25 scheme) can ease concerns over the bank’s asset quality.

Over the past 12-18 months, companies have deleveraged about USD 12 billion. Momentum is picking up and some of the larger names may consummate asset sales to deleverage over six to 12 months, says the brokerage, which sees a pipeline of USD 7-8 billion.

"Jaiprakash Associates should execute its plans to sell stakes in power and cement projects (worth Rs 15,000 crore) to JSW Energy over the next three to six months. Essar group may sell stakes in its refinery, port and power transmission businesses to fund its steel and power units. Among others, ABG group (shipyard and cement) and Nagarjuna Group may sell stakes in businesses to deleverage their balance sheets," it details.

At 11:29 hours IST, the scrip of ICICI Bank was quoting at Rs 302.45, down Rs 8.80, or 2.83 percent on the Bombay Stock Exchange.

Posted by Sunil Shankar Matkar