ICICI Bank Gets 'Buy' From Citi With Upgrade In Target Price — Here's Why

ICICI Bank's target price has been upgraded by Citi Research following the brokerage's interaction with the lender's management, which reaffirmed its stance on growth sustenance, contained credit cost and range-bound margins.

The brokerage has maintained its 'buy' call for the stock with the target price revised upwards to Rs 1,547 per share from Rs 1,464 earlier, which implies an upside of 13.3%.

"We revise our earnings estimates by 1-2% for FY25/26 (fiscal years 2025 and 2026)," it said.

ICICI Bank's management sounded confident of sustaining asset quality, the brokerage said, adding that post the seasonal uptick in slippages, due to Kisan Credit Card portfolio stress in the first quarter, it expects the number to stabilise at 1.8%.

"With 80% provision coverage and 1.07% contingency buffer, credit cost is also estimated to be contained," it said, stating that it expects credit costs to be at 0.5%,0.6%, and 0.8% for fiscals 2025-2027.

Citi Research expects a single-digit moderation in the lender's net interest margin and for it to remain range-bound until repo rate cut action begins. "We build 4.3% NIMs over FY25-27," it said. The net interest margin was 4.36% in the June quarter, down from 4.40% in the March quarter.

The brokerage noted that cost of deposits was broadly flat in the June quarter and it is expected to rise due to peak deposit rate hike by 5bps in Aug, and CASA. However, this will be partially offset by lower drag on interest reversal on KCC stress in first quarter.

The brokerage expects growth drivers, which helped the company in June quarter, to sustain the momentum on on year-on-year basis, leading to a mid-teens growth. The growth drivers include business banking, MSME and corporate banking.

In addition, Citi noted that retail seasonally witnesses better sequential momentum in second quarter compared to the first and that might continue. "Preference for segment-wise ROA threshold over chasing growth stays," it said, adding that narrowing lending rate gap with peers improves flow. "We are building in advances growth of 16% over FY25-27E," added the brokerage.

On the downside, the brokerage said a higher-than-expected deterioration in asset quality; reduction in net interest margins; aggressive expansion in international operations where returns appear low and risk levels relatively high; and inability to leverage capital, which keeps ROEs low are some of the risks that could impede the shares from reaching its target price.

Shares of the bank snapped their five-session rally on Monday after hitting their lifetime high of Rs 1,362.35 per share on Friday.

The scrip fell as much as 1.23% to Rs 1,322 apiece. It pared losses to trade 1.16% lower at Rs 1,323 apiece, as of 9:30 a.m. This compares to a 0.4% rise in the NSE Nifty 50 index.

It has risen 32.82% year-to-date and 39% in the last 12 months. Total traded volume so far in the day stood at 0.10 times its 30-day average. The relative strength index was at 74.6, indicating that the stock may be overbought.

Out of the 50 analysts tracking the company, 45 maintain a 'buy' rating and five recommend a 'hold', according to Bloomberg data. The average 12-month consensus price target implies an upside of 4.9%.