Technology Investments Will Drive 337% Business Banking Expansion

Key Takeaways

• ICICI Bank's strategic focus on technology and risk-calibrated growth aims to enhance market share and revenue across key segments.
  
• Strong capital position and prudent provisioning support stable net margins and mitigate downside risks to earnings.
  
• Slowed loan growth, challenges in international markets, and asset quality risks could pressure ICICI's revenue growth, margins, and profitability.

Catalysts

Engages in the provision of various banking and financial services to retail and corporate customers in India and internationally.

• ICICI Bank's strategic focus on risk-calibrated profitable growth through a customer 360-degree approach and investments in technology is likely to enhance revenue and market share across key segments.
  
• The expansion of ICICI Bank's business banking portfolio by 33.7% year-on-year and its focus on distribution and credit underwriting models can drive revenue growth and improve net margins due to the granular and low-risk nature of the portfolio.
  
• The bank's commitment to technology investments and enhancing delivery systems will simplify processes and strengthen operational resilience, positively impacting operational efficiencies and net margins.
  
• ICICI Bank's strong capital position, with a CET1 ratio of 15.94% and a total capital adequacy ratio of 16.55%, provides a solid foundation for future expansion and leveraging growth opportunities, potentially boosting future earnings.
  
• The focus on maintaining a healthy balance sheet with prudent provisioning and a high provisioning coverage ratio supports stable net margins and reduces potential downside risks to earnings in case of adverse economic conditions.

ICICI Bank Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ICICI Bank's revenue will decrease by 7.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 25.4% today to 41.1% in 3 years time.
• Analysts expect earnings to reach ₹659.1 billion (and earnings per share of ₹92.46) by about April 2028, up from ₹510.3 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹582.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.7x on those 2028 earnings, up from 19.9x today. This future PE is greater than the current PE for the US Banks industry at 10.9x.
• Analysts expect the number of shares outstanding to grow by 1.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.0%, as per the Simply Wall St company report.

ICICI Bank Future Earnings Per Share Growth

Risks

• The growth in personal loans and credit card portfolios has slowed considerably compared to previous years, indicating potential saturation or increased competition, which could impact revenue growth.
  
• The overseas loan portfolio has declined by 10.2% year-on-year, signaling potential challenges in international markets that could affect future earnings from global operations.
  
• There is a relatively high level of gross NPA additions and net NPA ratios, particularly from retail and rural portfolios, which could strain net margins through increased provisioning.
  
• Intense competitive pressures are noted in multiple product segments, potentially leading to pricing pressures that could squeeze net interest margins.
  
• The need for significant provisioning against security receipts and borrowers under resolution indicates potential risks to asset quality, which may result in lower profitability.

Valuation

• The analysts have a consensus price target of ₹1607.829 for ICICI Bank based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1850.0, and the most bearish reporting a price target of just ₹1290.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹1604.9 billion, earnings will come to ₹659.1 billion, and it would be trading on a PE ratio of 26.7x, assuming you use a discount rate of 14.0%.
  
• Given the current share price of ₹1424.4, the analyst price target of ₹1607.83 is 11.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.