Five private and public sector banks were among top March picks of Axis Securities and ICICIdirect. The two brokerages see an up to 43 per cent upside in these banking names in the coming months. Here’s what they said on the lender’s prospects:
ICICI Bank | Axis Securities | Target Price: Rs 1,150 | Upside Potential: 35%
ICICI Bank Ltd is one of the largest private sector banks in India with business operations spread across retail, corporate, and insurance. It is supported by a strong liability franchise and a healthy retail corporate mix. The bank’s subsidiaries such as ICICI Venture Funds, ICICI Pru AMC, ICICI Securities, ICICI Prudential, and ICICI Lombard are among the leading companies in their respective domains.
The bank has been outperforming its peers and has been firing on all cylinders. It has ticked most boxes on growth, margins, and asset quality. Higher loan growth, improving operating profits, and a strong provision buffer coupled with a strong deposit franchise will help the bank achieve ROAE/ROAA expansion over FY23-25E. On the valuation front, ICICI Bank continues to be on a comfortable footing.
HDFC Bank | ICICIdirect | Target Price: Rs 1,920 | Upside Potential: 20%
HDFC Bank’s focus on building physical and digital capabilities is expected to aid customer acquisition and business growth ahead. ICICIdirect see growth in advances at 18 per cent CAGR in FY24-25E. The near term volatility in stock price owing to uncertainty related to regulatory approvals offers investment opportunities, it said.
Diversified asset mix, healthy liabilities franchise, relatively superior efficiency and prudent under-writing is seen to keep RoA strong at 2 per cent ahead. The merger with HDFC is expected to get complete in Q1FY24, which will induce long term benefit. But the liabilities accretion should remain in focus in the medium term. At current price, the stock is available at 2.4 times FY25 adjusted book value, which is attractive.
State Bank of India | Axis Securities | Target Price: Rs 750 | Upside Potential: 43%
State Bank of India Ltd (SBI) is the largest public sector bank in terms of assets, deposits, branches, number of customers, and employees and has a pan-India presence. However, a slower-than-expected recovery cycle and slowdown in credit growth are the key concerns for the lender.
Among PSU banks, SBI remains the best play on the gradual recovery of the Indian economy on account of its healthy PCR, robust capitalisation, strong liability franchise, and improved asset quality outlook. Axis Securities believes that the normalisation in credit costs and improved growth outlook should lead to double-digit ROEs of about 16.5 per cent over FY23-25E.
IDFC First Bank |ICICIdirect | Target Price: Rs 70 | Upside Potential: 25%
IDFC First Bank Ltd has been delivering well on its guidance across parameters. The bank is well ahead of its target with retail/commercial book at Rs 1.1 lakh crore and CASA deposits at 51.3 per cent. With balance sheet restructuring largely done, pedaling growth with entry in new segments in focus.
A rise in retail mix, focus towards high yield segment and replacement of high-cost borrowings with relatively lower cost deposits to enable steady margin at 6 per cent. An improvement in gross non-performing assets ratio at 3.18 per cent, coupled with adequate provision buffer on legacy infrastructure exposure, provides confidence on credit cost remaining at 1.5-1.7 per cent in FY23-24E.
Federal Bank | Axis Securities | Target Price: Rs 170 | Upside Potential: 32%
The Kerala-based bank has a pan-India presence. It has exposure to insurance and NBFC businesses through its joint venture with IDBI and wholly-owned subsidiary FedFina. The bank continues to proactively execute its strategy of a branch-light and distribution-heavy franchise.
Key positives include increasing retail focus, strong fee income, adequate capitalization, and prudent provisioning. It remains well-poised to deliver a strong RoA and RoE of 1.2 per cent and 14-15 per cent, respectively, over FY24-25E. Asset quality trends in the upcoming quarters and loan growth are key to watch-out.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)
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