Jefferies Says ICICI Bank Well-Placed To Deliver On Growth, Profitability; Keeps Buy

Jefferies said ICICI Bank Ltd. stays among its top picks in the sector as the lender is seeing healthy deposit growth and its operating expenditure is in check to aid profit growth.

The brokerage retained its Buy call on India’s second-largest private sector lender with a base case target price of 1,350 rupees per share.

“We see the bank sustaining ROE (return on equity) of 18% and mid-teen CAGR in profit over FY24-FY27, aided by healthy loan growth, operating efficiencies and manageable credit costs,” Equity Analyst Prakhar Sharma and Equity Associate Vinayak Agarwal said in an investor note. “These will support valuations, PE (FY26E) 13x and P/ABV (FY26E) 2.2x.”

Key highlights from Jefferies’ view on ICICI Bank are:

DEPOSIT GROWTH

• ICICI Bank’s key strength, somewhat under-appreciated, is its deposit growth of 20% in FY24 with retail (Liquidity Coverage Ratio) deposits growing by 17% and Current Account Savings Account (CASA) by 10%.

• Focus on micro-markets with the right products, allocation of senior people at branches, branch expansion, leveraging corporate client base for retail deposits and higher focus on banking products versus insurance and other products are supporting growth.

• The bank’s Loan-To-Deposit Ratio (LDR) of 84% is also among the lowest across leading private banks.

• The brokerage expects a 17% CAGR in deposits over FY24-FY27 to support similar growth in loans as LDR is at sustainable levels.

SLOWER COST GROWTH

• ICICI Bank has been ahead on moderating staff additions and attrition rates are also moderating from already lower levels.

• These helped to moderate cost growth to 13% (core) in 4Q and the softer cost growth is likely to continue in FY25 as well.

• These should support a 14% growth in operating profit over FY25/FY26 even though likely net interest margin (NIM) compression of 30 basis points during FY24-FY26.

ASSET QUALITY

• Credit costs should normalize towards 0.6%-0.7% of loans over FY25-FY27.

• Corporate recoveries were high in FY24 from sectors like power and chemicals. The scope for recoveries in FY25 is also reasonable from sectors such as power, infrastructure and others.

Jefferies said ICICI Bank, whose valuations look attractive, is better positioned, given lower exposure to riskier sectors and manageable share of small and medium enterprises/unsecured retail loans.

The brokerage has a target price of 1,460 rupees on ICICI Bank, based on its upside scenario assumptions.

ICICI Bank hit a record high of 1,206 rupees on the National Stock Exchange in Mumbai trading today.

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