Risk-Optimized Growth Strategies Set To Propel Future Earnings And Market Share Expansion

Key Takeaways

• Focus on customer-centric and risk-calibrated growth strategies could drive revenue and market share growth.
  
• Investments in technology, people, and distribution may enhance operational efficiencies and increase net margins.
  
• The tightening economic conditions, declining overseas loans, and rising credit costs threaten ICICI Bank's profitability and growth, amid increasing competition and pressure on margins.

Catalysts

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

• The bank's focus on risk-calibrated profitable growth through a 360-degree customer-centric approach and service across ecosystems is expected to drive future revenue and market share growth.
  
• ICICI Bank continues to invest in technology, people, and distribution, which could enhance operational efficiencies and potentially increase net margins over time.
  
• The growing business banking portfolio, with a 30% year-on-year growth, reflects significant future lending opportunities, which could contribute positively to future earnings growth.
  
• The improvement in credit quality management, evidenced by controlled slippages and a comfortable provision coverage ratio, could lead to stable or reduced credit costs, positively impacting net margins.
  
• A strong capital position, with a CET1 ratio of 15.96%, provides a solid foundation for future growth opportunities and potential for higher earnings.

ICICI Bank Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ICICI Bank's revenue will decrease by -1.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 28.9% today to 40.0% in 3 years time.
• Analysts expect earnings to reach ₹621.4 billion (and earnings per share of ₹86.66) by about November 2027, up from ₹473.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹505.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.0x on those 2027 earnings, up from 19.0x today. This future PE is greater than the current PE for the US Banks industry at 13.0x.
• Analysts expect the number of shares outstanding to grow by 0.54% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.09%, as per the Simply Wall St company report.

ICICI Bank Future Earnings Per Share Growth

Risks

• The tightening of global and domestic inflation, liquidity, and interest rate environments could hinder revenue and net margins by increasing the cost of funds and impacting the overall profitability and loan growth of ICICI Bank.
  
• The declining overseas loan portfolio, which fell by 6.9% year-on-year, limits ICICI Bank's earnings potential from international operations.
  
• The persistent gross NPA additions, particularly from the retail and rural portfolio, at ₹50.73 billion in the current quarter could increase credit costs and exert pressure on net margins.
  
• The gradual upward normalization of credit costs, especially in unsecured loan segments like credit cards and personal loans, could lead to increased provisions, thereby impacting net profits and earnings.
  
• The increasing competitive pressure in key lending segments, mentioned implicitly through the need for disciplined market lending, could impact revenue growth and compress net interest margins if loan rates are further affected.

Valuation

• The analysts have a consensus price target of ₹1460.08 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 ₹1640.0, and the most bearish reporting a price target of just ₹1170.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₹1554.9 billion, earnings will come to ₹621.4 billion, and it would be trading on a PE ratio of 25.0x, assuming you use a discount rate of 14.1%.
  
• Given the current share price of ₹1278.7, the analyst's price target of ₹1460.08 is 12.4% 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.