CMP: 392.15

Target: ₹500

Led by dwindling headwinds on asset quality front and improving balance sheet, ICICI Bank is expected to deliver sustained improvement across operating metrics.

Further, its strong liability franchise with the industry-best CoF adds to our comfort. RoE expansion over the next two fiscals will mainly be driven by margin improvement and decline in credit cost.

Moreover, sustained decline in concentration risk and increasing share of higher rated corporate loans will aid its asset quality and credit costs.

Asset quality continued to improve sequentially in 1QFY20 with a 20 bps decline in GNPA to 6.5 per cent. Moreover, the Bank’s outstanding standard ‘BB and below’ portfolio also declined to ₹15,300 crore or 2.6 per cent of net advances from 3 per cent in the previous quarter.

Loan growth trends are healthy with domestic loan growth at 17 per cent y-o-y as of 1QFY20, mainly driven by 22 per cent y-o-y growth in retail portfolio.

We have a BUY recommendation on the stock with a Target Price of ₹500, implying a FY21 P/ABV of 2.7x. The stock currently trades at FY21E P/ABV of 2.2x.

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