With most of the key subsidiaries listed now, comparison between ICICI Bank and HDFC group shares deserves attention or seems to be well-timed. HDFC and HDFC Bank have been definitely and consistently superior than ICICI Bank in terms of important financial metrics. Accordingly, their shares have significantly outperformed ICICI Bank with market capitalisation jumping more than five and 12 times, respectively, in the last one decade, compared to the latter’s three times, according to Capitaline data.

Even HDFC’s newly-listed subsidiary, HDFC Standard Life Insurance, has done better than ICICI Prudential Life Insurance though listing dates are different. The stock of ICICI Prudential Life Insurance has gained close to 42 per cent in almost two years of listing, while HDFC Standard Life is up 44 per cent in just eight months.

According to analysts, premium valuations of HDFC group’s shares are indeed justified but currently they are fairly valued and most offer limited upside.

On the other hand, ICICI Bank and its subsidiaries, which have underperformed HDFC group due to a variety of reasons, can be considered as value buy, they added.

“While the company (HDFC) is tracking steady core performance, its valuation at 3.1 times adjusted book value for core return on equity of 16.5 per cent appears to be fair,” said Kunal Shah, analyst at Edelweiss. He expects 9 per cent upside from current levels.

ICICI Bank may rise 18%

Prabhudas Lilladher has increased the target price on HDFC Bank by 9 per cent to ₹2,492 (to factor in fund-raising) and retained its ‘buy’ rating on the stock. ICICI Bank also offers similar upside of 18 per cent based on average target prices estimated by analysts on both stocks. If things go well at ICICI Bank financially and otherwise (read management and regulatory issues), then the upsides could be even more, given its rock bottom valuation of 1.2 times price-to-adjusted-book-value estimated for FY20.

“Core operating profit remains healthy (+13 per cent year on year); new NPA addition moderates (slippages at 3.1 per cent of loans) and loan growth (+11 per cent) gathers pace. We see provisions remain elevated in the near term (FY19E); however, we draw comfort in the pace of resolution and 69 per cent coverage ratio (combined) against list-1 and list-2 IBC accounts. Capital position remains healthy; subsidiaries remain profitable. Valuations continue to remain undemanding,” pointed out Centrum in its post-June quarter results.

HDFC Securities has a similar view and added: “Despite building in relatively lower recoveries and cutting earnings by 31 per cent and 5 per cent for FY19 and 20, respectively, ICICI Bank can yield return on average assets of 1.11 per cent in FY20. This, and inexpensive valuations, drive our positive view. Further dilution in subsidiaries and robust recoveries could push earnings upwards.”

Insurance segment

Between the life insurance subsidiaries, analysts are more bullish on ICICI Prudential Life insurance in the near term as they expect 21 per cent upside versus HDFC Standard Life’s 2 per cent. This is mainly due to time correction in the HDFC Standard Life stock thanks to its high valuation following robust listing and post-listing performance.

Also, though HDFC Standard Life is estimated to report higher growth in new business APE (annualised premium equivalent) and VNB (value of new business) over FY18-FY20, Motilal Oswal expects improvement in VNB margin for ICICI Prudential Life Insurance from the current 17.5 per cent, and the same to be sustained at 24 per cent in case of HDFC Standard Life.

HDFC Asset Management Company’s initial public offer got subscribed a whopping 83 times thanks to robust financial performance and superior brand image/market position. Even though the listing performance will be robust thanks to huge response from investors, it might again see a time correction later on as happened in HDFC Standard Life Insurance. At the upper end of the price band, it is already valued higher at 32 times FY18 earnings/7.8 per cent to FY18 AUM, compared to 26 times/5.6 per cent in case of Reliance Nippon Life AMC.

There are no fresh analyst views on ICICI Securities and ICICI Lombard General Insurance after their listings in April 2018 and September 2017, respectively.