Investments In DigiEase And iLens Are Expected To Streamline Processes And Improve Customer Experience

Key Takeaways

• Strategic investments in technology and business banking hint at revenue growth and market share expansion through enhanced customer experience and scaling.
  
• Strong credit quality, liquidity, and cost-reduction initiatives indicate potential for stable earnings growth and improved profitability.
  
• Declining international loans and worsening asset quality could pressure ICICI Bank's profitability and future growth amidst rising deposit costs and slowing retail loan growth.

Catalysts

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

• ICICI Bank's strategic investments in technology, people, distribution, and brand building, including initiatives like DigiEase and iLens, are expected to enhance customer experience and streamline processes, leading to potential revenue growth.
  
• The bank's focus on business banking, which grew by 31.9% year-on-year, and the adoption of a 360-degree customer-centric approach, indicate potential for increased market share and improved net margins due to economies of scale.
  
• Continuous improvement in credit quality, with a low net NPA ratio of 0.42% and strong provisioning coverage, could positively impact net margins and drive earnings growth.
  
• The emphasis on maintaining strong liquidity and capital adequacy, with an average liquidity coverage ratio of 123% and CET1 ratio of 15.93%, positions the bank well for future growth opportunities, potentially enhancing future earnings stability.
  
• Opportunities for reducing operating expenses through streamlined processes and workforce integration could lead to improved net margins and profitability.

ICICI Bank Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ICICI Bank's revenue will decrease by -3.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 28.0% today to 40.7% in 3 years time.
• Analysts expect earnings to reach ₹649.0 billion (and earnings per share of ₹90.61) by about January 2028, up from ₹492.0 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.6x on those 2028 earnings, up from 18.0x today. This future PE is greater than the current PE for the US Banks industry at 9.6x.
• Analysts expect the number of shares outstanding to grow by 0.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.22%, as per the Simply Wall St company report.

ICICI Bank Future Earnings Per Share Growth

Risks

• The net interest margin (NIM) has slightly decreased from 4.27% to 4.25% quarter-on-quarter, indicating potential pressure on profitability, which could affect future earnings growth.
  
• The overseas loan portfolio has significantly declined by 21.2% year-on-year, indicating reduced international diversification and potential revenue opportunities.
  
• The increase in gross non-performing asset (NPA) additions to ₹60.85 billion, compared to ₹50.73 billion in the previous quarter, suggests worsening asset quality, which could impact net margins.
  
• Slow growth in the retail loan portfolio, with some segments such as personal loans declining sequentially by 1.3%, may reflect tightening credit conditions or market saturation, potentially affecting revenue generation.
  
• The overall cost of deposits has increased to 4.91%, up from 4.88% in the previous quarter, which could pressure net interest margins if loan repricing does not occur at the same rate.

Valuation

• The analysts have a consensus price target of ₹1493.02 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 ₹1670.0, 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 ₹1592.9 billion, earnings will come to ₹649.0 billion, and it would be trading on a PE ratio of 24.6x, assuming you use a discount rate of 14.2%.
  
• Given the current share price of ₹1251.65, the analyst's price target of ₹1493.02 is 16.2% 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.