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Brokerages remain bullish on ICICI Bank

Brokers say improving asset quality and attractive valuations positive for the stock.

, ET Bureau|
Updated: May 09, 2018, 09.45 AM IST
Leading brokerages remain upbeat on the stock of ICICI Bank after the lender’s fourth quarter results.
Mumbai: Leading brokerages remain upbeat on the stock of ICICI Bank after the lender’s fourth quarter results. They find its valuations attractive and expect the bank’s earnings to normalise. CLSA, for example, has maintained ‘buy’ on the stock with a target price of Rs 430. HSBC and Macquarie, too, have also retained a bullish view. Shares of ICICI Bank ended up close to 7 per cent at Rs 309.25 on the BSE on Tuesday.

CLSA has lowered its FY19-FY20 earnings estimates for ICICI Bank, but it expects the earnings to normalise from FY20 onwards. With its valuation at a 1.4 times FY19 adjusted price-to-book, ICICI trades at significant discount to peers, and improvement in asset quality will be key to its rerating, said CLSA. ICICI remains among CLSA’s top picks.

The bank said ICICI’s stress book is now largely recognised with residual stress at 2.6 per cent of loans. However, the provisioning-coverage ratio is only 48 per cent, which will require another year of elevated credit costs, resulting in weak RoEs, with likely improvement only towards end of FY20, the bank said. Deutsche Bank said valuation for the core bank is attractive, but low near-term RoEs should constrain re-rating.

The quantum of slippages from outside the known stock of stressed accounts declined quarter-on-quarter, which is encouraging, and improves the asset quality outlook for ICICI Bank at the margin, said HSBC. The firm finds ICICI Bank’s valuations attractive. However, HSBC has cut its earnings estimates for ICICI Bank in FY19 and FY20 by 3 per cent and 7 per cent, respectively, on lower loan growth expectations.

The strength of the liability franchise, shift in loan mix towards retail assets and/or better-rated corporates and improvement in recovery of bad loans will be a key trigger for multiple expansion. It sees the bank’s focus shifting towards growth and getting back to normalised return on equity, which looks achievable in FY20.

The firm said if ICICI Bank continues to provide on bad loans, it should be able to see RoE normalisation in FY20. Morgan Stanley said valuations at 1.1 times FY20 core book are attractive. It will be volatile as earnings progression will be choppy, and there will be management-related news flow, but stock should do well over the next year.

ICICI Bank snip

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