Anand Rathi
ICICI Bank is strongly positioned in most of the retail banking products along with the diversified nature of its loan portfolio. This has allowed the bank to register strong advances growth of ~11 percent CAGR in the past four years with asset quality staying under control.
The management has given the guidance that credit costs in FY20 would be significantly lower than FY19. Specifically, the management stated that credit costs would be in the range of 1.2-1.3 percent during the year.
The management guided that it aspires to keep provisioning expense at 20 percent of the operating profit in the longer run, which would translate to credit costs of 100 bps.
The management has given a guidance to achieve a consolidated RoE target of 15 percent by June’20.
Considering the strong brand franchise, improving asset quality trends and strategy focus, the bank is well poised to deliver consistently with improving return ratios.
We expect company to grow its standalone NII at a CAGR of 17 percent over the next two financial years. Healthy advances growth & cross sell opportunities in the existing high quality deposit franchise will help in delivering strong NII going forward.
On profitability front, we expect company to report standalone PAT CAGR of 111 percent over the next two financial years. Lower credit cost along with healthy advances & NII growth will help in delivering strong profitability going forward.
With declining credit cost on account of lower slippages and much adequate provision coverage ratio, we believe ICICI Bank is favourably positioned to deliver superior profitability and return ratios. We initiate our coverage on ICICI Bank Limited with a BUY rating and target price of ₹511 per share.
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