ICICI Bank shares gained as much as 3 percent intraday on June 18 after global brokerage firm Macquarie raised price target on the stock by 13 percent to Rs 525 from Rs 465 while maintaining outperform call.
“We think this is a new ICICI Bank, today. We think the watershed moment that occurred in ICICI’s retail asset quality pre-2009 (and dichotomous post-2009 pristine retail quality) is now set to replicate in its corporate loan book. ICICI Bank is our top pick in the Indian financials space & is a Macquarie Marquee Idea,” the brokerage said.
It increased target price-to-book value from 1.8x to 2.1x, but announced small cuts in FY20-22E EPS of 2-3 percent on account of lower treasury gains.
The research firm said under Sandeep Bakhshi (the new CEO), the bank has revamped its risk appetite and underwriting processes.
“It has become more conservative (over 80 percent of new loans to corporates rated A- & above; absolute caps on group level exposures), has increasingly become more granular (over 60 percent of loans are now retail) and more methodical in its approach (mandatory down-sell of large loans to gain market intelligence). ‘Ecosystem Return on equity’ is the pivotal decision metric for any new loans,” it added.
Loans to NBFCs comprise around 7 percent of its total exposures, but there have almost no exposures to any stressed lenders. Some of the names that are in trouble, ICICI Bank has no long-term loan exposures at all.
“Our meeting with corporate banking head reinforces our positive view on the stock,” the brokerage said.
ICICI Bank feels the private capex cycle is far away and loans to the industry will remain in mid-single-digits for a few more years. That said, it is still targeting around 15 percent loan growth in the corporate segment, led by market share gains.
“Underlying gross loan growth (stripping away the impact from higher NPL formation, higher provisioning) is already clocking numbers close to those,” Macquarie said.
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