High Conviction Idea : Buy ICICI Bank Ltd For Target Rs 940 - Centrum Broking
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Business overview
As at Q3FY22, the bank had an asset base of Rs13.9tn with advances of Rs8.5tn and deposits of Rs10.6tn. Loan mix is retail (61.3%), corporate (23.4%) and SME (10.3%). Deposit mix is CASA (47.2%) and RTD (52.8%). Capital position is strong at CAR/CET-1 at 19.3%/17.6. Branch network stands at 5,298.
Investment thesis
Asset quality has been on the mend since FY18 with total stress consistently declining. While gross slippages have been controlled between 2-3% over FY19-9MFY22 (vs 4-7% over FY16-18), recoveries been much stronger at ~40% in 9MFY22 compared to 17-22% over FY16-18. Driven by lower slippages and increasing retail share, NIM enhanced from 3.4% to 4.0% over FY19-22.
As we are staring at a near term spike in inflation, ICICI Bank might be well insulated as credit growth has bounced back sharply for ICICI Bank over the last 4 quarters with all segments seeing better credit flow in Q3FY22. Also, the ICICI relies more on deposits which are stickier in nature than borrowings. From an ALM standpoint the bank runs a positive mismatch which could be positive in a rising interest rate environment
Key triggers in the near to medium term
Further value unlocking from listing of subsidiaries or stake sale gains from existing listed subsidiaries
Resolutions in some corporate accounts which could see higher recoveries.
Corporate capex cycle picking up which would benefit ICICI Bank
Key risks
Higher slippages that could emanate from retail
Opex may rise in the near term due to tech spends
Lower credit growth owing to competition; pressure on NIM
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