Motilal Oswal Stays Bullish on ICICI Bank with Over 16% Upside Potential

In a recent report, brokerage firm Motilal Oswal has reaffirmed its ‘buy’ rating on ICICI Bank, citing the bank’s solid progress toward sustainable growth, robust contingency buffers, and effective risk management practices. The report includes a target price of Rs 1,150 for ICICI Bank’s stock, implying a substantial potential upside of over 16% from its current trading level of Rs 985. Motilal Oswal’s assessment is based on ICICI Bank’s Annual Report for 2022-23, highlighting several key strengths.

ICICI Bank’s Retail Segment Growth:

Motilal Oswal acknowledges ICICI Bank’s consistent efforts to strengthen its retail franchise, with the segment achieving an impressive 23% YoY growth, including an 18% YoY increase in home loans.

Diversification and Growth:

The bank’s strategic focus on building a diversified and granular portfolio has yielded positive results, with healthy growth observed across Retail, SME, and Business Banking portfolios. Additionally, ICICI Bank experienced a 19% YoY growth in its corporate book during the first quarter of FY24.

Strong Deposit Base:

ICICI Bank continues to witness robust growth in retail deposits while maintaining a strong liability franchise. Total deposits, including current accounts and savings accounts (CASA), have demonstrated a Compound Annual Growth Rate (CAGR) of 16% and 13% respectively over the period from FY18 to FY23. Although the CASA ratio decreased to 45.8% in FY23, it remains a vital source of low-cost funds for the bank.

Digital Advancements:

Motilal Oswal notes that the bank’s growth in its deposit franchise is attributed to continuous efforts in enhancing digital platforms and streamlining processes to provide customers with a seamless banking experience.

Financial Strength:

ICICI Bank boasts a healthy Tier-I capital ratio of 17.6% and has made significant strides in improving asset quality, maintaining a best-in-class Provisioning Coverage Ratio (PCR) of 83%. PCR represents the percentage of funds allocated by the bank for potential losses due to bad debts.

Subsidiary Performance:

The report highlights that ICICI Bank’s subsidiaries, including ICICI Prudential Life Insurance, ICICI Lombard General Insurance, ICICI Securities, and ICICI Prudential AMC, have reported robust financial performances for FY23.

Positive Traction:

ICICI Bank is experiencing strong traction across key segments such as Retail, SME, and Business Banking. Asset quality remains stable, and the bank’s additional COVID-19 provision buffer, equivalent to 1.2% of loans, provides additional comfort to investors.

Market Performance:

As of the date of the report, ICICI Bank’s shares have surged by 9% this year, outperforming the 5% rise in the Nifty Bank index.

In conclusion, Motilal Oswal’s analysis underscores ICICI Bank’s promising outlook, with a ‘buy’ rating and a target price reflecting a substantial potential for growth. The bank’s strategic focus on diversification, digital innovation, and strong financial fundamentals position it well for continued success in the market.

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