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Consistent delivery beyond expectations; Retain top buy in PVBs

ICICI Bank hosted its annual analyst day, showcasing its top-of-the-order digital stack and go-to-market and micro-market strategy while holding on to its fair-to-customer, fairto-bank policy with a relentless focus on driving up core profitability. KTAs are as follows

* Transforming from a Bank to BankTECH to drive growth/revenue and reduce cost/risk: ICICI Bank has been investing heavily (9% of opex) over the past few years to build tech stacks across its business verticals, be it retail, SME, and corporate, thereby offering seamless business journeys to its customers. Digital is emerging as a force multiplier and, thus, the bank has seen more than 1.5-2x growth across select business segments at a far lower customer-acquisition/servicing cost. The bank has also partnered with multiple newage fintechs/start-ups in co-lending, liability, analytics, and collection space to acquire digitally native customers, increase wallet share, manage credit risk and, thus, improve customer-level RoE. The ICICI-Amazon card has been one such partnership offering increased customer acquisition (>3.5 mn cards) coupled with higher-than-industry spend (1.2x) and activation rate (70%).

* Go-to-market strategy – Taking the bank to the customer: The bank has unveiled its goto-market strategy, taking the entire bank to the customer instead of specific products with overarching 3 ‘T’ anchors being Trust (Reputation is paramount and, thus, sell products that are fair to the customer), Team (One Bank One Team – 9 State/104 Zonal/24 City heads to offer all products/services with core profitability as KRA instead of growth), and Technology (Digital first). As a strategy, the bank has merged rural banking centers with retail centers, fully aligned retail assets distribution with liabilities, and converged MSME/Private Banking teams with retail and credit business centers, co-located in Business center.

* Focus on Retail, SME, and now corporate 3600 approach to drive profitable and sustainable growth: Retail (secured/unsecured) and SME/Business Banking will remain the key growth drivers for the bank, which is riding on its targeted micro-market strategy. The bank is now adopting a corporate 3600 approach, whereby the Corporate RM’s role has been changed to the role of a co-anchor, curator, connector, and facilitator to drive not only the lending relationship but also capture the corporate ecosystem (entire supply chain, employees, and promoters) to offer payments, liability, treasury/forex/derivative, and TPD products/services, thereby focusing on engrained customer engagement and enhance customer-level RoE.

* Strong and consistent delivery on risk-calibrated growth/profitability; Retain top Buy in PVBs: ICICI Bank remains our top fundamental pick, given its superior financial performance (>20% growth with >17% RoE) beyond expectations, top-management stability, and strong capital/provision buffers. We retain BUY with a revised TP of Rs1,225 (Rs1,170 earlier), rolling forward the standalone bank at 2.8x Dec-24E and subsidiaries at Rs225. The bank clarified that it remains committed to staying aligned with regulatory guidelines on reducing stake in ICICI Lombard to 30% unless the regulator provides any dispensation.

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