Are ICICI Bank shares a good pick?

0
151
ICICI Bank share price

Recently, the ICICI Bank share has seen a significant upswing and market sentiments suggest that investors strongly believe it will continue its stellar performance. The reasons are:

Fundamental Performance

The last five years’ performance is a strong indicator of the market sentiment of offering ICICI Bank higher valuations due to its fundamental improving metrics. Some specific advantages that ICICI Bank has over most of its competitors are its low cost of funds due to its excellent CASA ratios and recent focus towards growing its granular retail loan book bolstered by its digital initiatives, which in turn have already led to reduced NPA figures. 

However, since the ICICI Bank share price is already re-rated concerning its valuation multiples, future growth in the share price is expected to come from earnings growth geared by the expected upcoming credit growth cycle. In its last AGM, the bank also addressed that it will now look forward to growing the number of branches to increase its reach, one of the very few metrics where the bank lagged its top competitors.

Infra Bonds

The bank has also decided to raise funding through infra-bonds worth Rs. 10,000 crorein its effort to raise low-cost funds beyond CASA for project financing and affordable housing and has received the necessary approvals for the same from RBI. These are long-term bonds with a maturity period of at least seven years, and the higher chances of infrastructure loans becoming stressed assets have made private sector banks wary of fresh lending, and this is the market gap that ICICI Bank aims to fill. 

An additional benefit of these bonds is that the bank can benefit from the exemption of CRR and SLR, thus avoiding asset-liability management problems usually seen in infra loans. Based on the prospective loan book, the credit rating agency ICRA has already assigned an “AAA” rating to the bonds. 

Earnings Report

The bank reported its Q1 earnings on July 23, and the ICICI share price has risen 12% since then. It reported a 50% YOY growth in its Profit after Tax to Rs. 6,905 crore, a 21% YOY growth in its Net Interest Income to Rs. 13,210 crore while having a net interest margin of 4.92%. Its gross non-performing assets fell to 3.41% from 5.15% last quarter.

With strong concentration towards growing its retail loan book, one of the best-in-class provision coverage ratios and additionally aided by recent RBI rate hikes, market participants believe that the bank will continue to grow strong, and its current valuations look attractive, especially when compared to global banks as evidenced by its growing FII ownership. 

Disclaimer :ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. – ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai – 400 025, India, Tel No : 022 – 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. I-Sec is a SEBI registered with SEBI as a Research Analyst vide registration no. INH000000990. Name of the Compliance officer (broking): Ms. Mamta Shetty, Contact number: 022-40701022, E-mail address: complianceofficer@icicisecurities.com. Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The non-broking products / services like Research, etc. are not exchange traded products / services and all disputes with respect to such activities would not have access to Exchange investor redressal or Arbitration mechanism. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.

 

LEAVE A REPLY

Please enter your comment!
Please enter your name here