Is ICICI Bank Stock A Good Investment – ICICI Bank is the second largest private sector bank in India offering a comprehensive range of financial services. The bank has over 5,300 branches across the country and serves over 21 million retail customers. ICICI Bank stock has generated strong returns for investors over the past decade. But is it still a good investment opportunity at current levels? Let’s analyze in detail.
Strong Financial Growth
ICICI Bank has posted robust growth in revenues and profits over the past 5 years:
- Net interest income has grown at ~9% CAGR from FY17 to FY22 to Rs. 43,621 crores.
- Net profit has risen at 21% CAGR during the same period to Rs. 23,339 crores.
- Return on equity has been healthy in the range of 12-15%.
- Net interest margins have also remained stable at 3.5-4%.
The consistent growth in core banking metrics underscores the bank’s strong fundamentals.
Leadership in Digital Banking
ICICI Bank has emerged as a frontrunner in digital banking in India by leveraging technology across services:
- It has transformed services like account opening, lending, payments using cutting edge digital platforms.
- The bank has tie ups with major e-commerce companies to offer financing options.
- Over 90% of its transactions now take place digitally vs. 60% for the banking system.
- It won several accolades for its technology led banking services.
The digital leadership provides competitive advantages and helps attract millennial customers.
Strong Asset Quality
ICICI Bank’s asset quality is among the best in the industry after recovering sharply over the past 5 years:
- Its gross non-performing asset (NPA) ratio has declined from a peak of 8.8% in FY18 to 3.6% in FY22.
- Net NPA ratio has reduced from 4.8% to 0.7% during the same period.
- Provision coverage ratio has increased from 47% to 79% offering stability.
The much improved asset quality provides comfort regarding its underwriting practices and credit risk management.
Well Capitalized for Growth
ICICI Bank is well capitalized currently with a capital adequacy ratio of 19.57% as of June 2022, well above the regulatory minimum of 10.875%.
Its Tier I CAR stands at 18.74% providing headroom for asset expansion and business growth.
The bank is thus in a strong position to capitalize on credit growth opportunities across retail and corporate banking.
Diversified Loan Book
ICICI Bank has a well diversified loan portfolio across segments:
- Retail loans comprise nearly 60% of total advances – in housing, automobiles, credit cards etc.
- Corporate loans account for 32% of the overall book.
- SME loans form around 8% of the loan assets.
The diversified mix results in a balanced risk profile and stable asset quality across business cycles.
Improving Deposit Franchise
- ICICI Bank’s retail term deposits have grown at ~12% CAGR over FY17-22.
- Its low cost current account and savings account ratio has increased from 42% in FY17 to 57% in FY22.
- The bank has been opening new branches rapidly in small towns to attract deposits.
- It has also leveraged digital channels effectively for deposit mobilization.
The retail deposit growth and CASAA expansion have helped lower its cost of funds.
Valuation and Shareholder Returns
- ICICI Bank trades at reasonable valuations – 1 year forward P/E of 17x.
- It offers an attractive dividend yield of over 2%.
- The bank has grown book value per share at 10% CAGR over last 5 years.
ICICI Bank offers a good balance of growth, yield and steady value creation for shareholders.
Outlook and Growth Drivers
ICICI Bank is well placed for robust growth ahead led by:
- Continued momentum in retail assets like home loans.
- Pick up in corporate credit and working capital loans.
- Leveraging digital channels for cross selling and fee income.
- Expansion in deposit base especially in semi urban/rural markets.
- Improving cost to income ratio.
The bank is poised for ~15% earnings CAGR over the next 2-3 years led by these catalysts.
Conclusion
In summary, ICICI Bank remains one of the best plays in the Indian banking space. It has strengthened its franchise significantly over the past decade through higher provision buffers, leadership in digital banking and expanding distribution reach. With its strong deposit profile, diversified loan mix, robust balance sheet and healthy return ratios, the bank is poised for strong growth ahead. ICICI Bank remains a core portfolio holding for the long term to ride India’s multi-decade under-penetrated banking opportunity.
Is ICICI Bank Stock A Good Investment? – FAQs
What is ICICI Bank’s market share in India?
ICICI Bank is the second largest private sector bank in India with a market share of ~7% in advances and ~6.5% in deposits.
What is ICICI Bank’s dividend history?
ICICI Bank has consistently paid dividends since FY2001. It has grown DPS at 11% CAGR over the past 5 years. The current dividend yield is ~2.5%.
How has ICICI Bank stock performed in last 3 years?
ICICI Bank share price has gained around 110% in last 3 years significantly outperforming Nifty Bank index which is up ~45% during the period.
What is the outlook from analysts on the stock?
Most analysts are bullish on ICICI Bank with buy/outperform ratings owing to its strong liability franchise, recovery in corporate loan growth and stable asset quality. The consensus 12 month target indicates ~15% upside.
What are the key risks and challenges for the bank?
Key risks are slower than anticipated credit growth, impact of high retail inflation on asset quality, lower fee income growth and margin pressure due to competition. However, the bank seems well placed to tackle these risks.
Does ICICI Bank have high exposure to risky sectors?
No. ICICI Bank has significantly reduced exposure to stressed sectors over the years. Its corporate loan book is well diversified across sectors and companies. The bank has the best asset quality among top private banks in India currently.
How does ICICI Bank compare with HDFC Bank?
ICICI Bank is somewhat similar to HDFC Bank in terms of business profile, margins, asset quality and valuations. HDFC Bank scores higher in terms of lower NPAs, higher CASA and rural reach while ICICI Bank has the edge in digital banking.
What is the outlook from management on growth and margins?
The management has guided for 12-15% growth in loans driven by retail segment and revival in corporate capex. The bank expects to maintain margins around 3.5-4% through higher CASA deposits and improved loan mix.
Conclusion
To summarise, ICICI Bank stock remains an attractive long term investment to benefit from the India growth story. The bank is very well placed post strengthening its balance sheet over the past decade. Its strong execution and competitive positioning make it among the best plays in the banking space. Investors can consider accumulating the stock on dips for healthy portfolio returns over a 3-5 year horizon.
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