Reliance Securities

ICICI Bank (Buy)

CMP: ₹527.9

Target: ₹600

Lower internal exposure limits, higher rating thresholds, emphasis on shorter tenor corporate loans, and continuous monitoring of corporate book even at the portfolio level (apart from account level) should lead to a healthier wholesale book going forward. While demand concerns are not ruled out, the ICICI Bank is likely to gain from increased borrower preference for smaller consortium, and supply side challenges. The change in focus from ‘pricing’ to ‘return of capital’ at the time of underwriting has been a key transformation, which should help lower incremental credit cost. Moreover, focus on entire corporate ecosystem (and not just the corporate) will aid its fee lines, increase client stickiness, and result in better pricing power.

Outlook & valuation: We continue to like ICICI Bank for its increased conservatism, relatively low residual corporate stress, and strong liability franchise. However, the stock has outperformed its peers in the recent past. While the re-rating may continue, it is likely to be more gradual hereon. We maintain our ‘buy’ recommendation on the stock with a revised SOTP-based Target Price of ₹600, valuing the standalone bank at 2.4x FY21E book, which including the value of subsidiaries implies 3.2x of FY21 P/ABV.

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