Tag: HDFC

This led to an almost 4% drop in the bank’s shares in afternoon trade on Wednesday in a market, which saw across the board sell-off due to Covid worries. At the same time, the drop in ICICI Bank was just 2%.

While it has a lot of catching up to do, ICICI Bank is fast narrowing the gap with HDFC Bank and larger peers.

Why is ICICI Bank surging

Experts said the worst is behind ICICI Bank. It has gone through a period of tremendous amounts of credit cost related issues and write-offs taking place. Secondly, it is focusing more to be a retail bank which is contributing to growth. On top of it, ICICI was trading at a substantial discount in terms of its valuation to its larger peers. The discount is also narrowing down and has contributed to this outperformance.

ICICI Bank’s performance has now become comparable with HDFC Bank’s (industry best) and as comfort on asset quality/ credit-cost improves, this should translate into stable growth in net profits as well, experts said.

It has improved the velocity (pace and direction) of operating profit over the past two years reflecting improved topline and cost efficiencies. An improvement in velocity of ICICI Bank’s operating profit growth & steady credit cost will bring down volatility in earnings, which has been a key reason for a 55% discount in valuation versus HDFC Bank. Lower volatility can reduce Beta, which can bridge the valuation gap by half. The rest reflects the gap in growth & ROE – this can be partly bridged with improved growth in clients/ CASA. Brokerage Jefferies has raised its price target to Rs 780 and hold it among its top picks in the sector.

ICICI Bank versus HDFC Bank

ICICI Bank trades at 55% discount to HDFC Bank in terms of valuations – ICICI Bank at 1.9x FY22 adjusted PB and HDFC Bank at 3.4x. This reflects a combination of HDFC Bank’s better growth, ROE and lower Beta. With a lower volatility in earnings, HDFC Bank’s Beta is at 1 whereas ICICI’s is around 1.2-1.3. Brokerage Jefferies said that consistency in earnings growth/ asset quality will help ICICI Bank bring down Beta closer to 1. This can lift-up the theoretical PB from 1.9x now to 2.5x – closing the gap with HDFC Bank by 30%.

CASA deposits

ICICI Bank has seen steady growth in CASA deposits. During Q3, ICICI Banks saw average CASA growth of 19% YoY whereas HDFC Bank saw 30% YoY growth.

Jefferies sees an improvement in earnings and profitability from FY22 as credit costs stabilise alongside steady growth in topline. It has raised its price target on the bank to Rs 780 (from Rs 700) and target multiple to 2.4x Mar-23E adjusted PB.

At a valuation of Rs 1.7-1.8 lakh crore, ICICI Bank has a big branch network and stability and clean up that has been brought about in the business in the last three years under the new leadership, while HDFC has a market cap of close to about Rs 8 lakh crore.