ICICI Bank: Is It Finally Time for the Phoenix to Rise?

Are you ready for a financial rollercoaster ride? Buckle up, because this week we're diving into the intriguing world of ICICI Bank.

Picture this: a bank that just posted its highest-ever quarterly profit, with a return on assets (ROA) that would make any investor's eyes sparkle. 

Sounds like the stuff of dreams, right? Well, that's exactly what ICICI Bank achieved in Q1 FY24, and yet, its stock has been meandering along, up only 8 percent in the past year. So, what's the deal here?

A Financial Marvel

First, let's talk numbers. ICICI Bank delivered a jaw-dropping net interest margin (NIM) of 4.88 percent on its domestic book in the first quarter of FY24. To put that in perspective, that's significantly higher than the 4.10 percent that HDFC Bank managed in the same period. ICICI Bank isn't just in the game; it's leading it.

Fueling Growth

But that's not all. The bank's domestic loan book saw a remarkable 22 percent year-on-year growth, a testament to its robust performance across various business segments. 

Retail credit, a crucial player in this growth, expanded by a stellar 22 percent year-on-year, driven by the unsecured book, including personal loans and credit cards. The unsecured portfolio now accounts for 12.8 percent of the total loan portfolio as of June.

Navigating the Risks

Of course, with great growth comes great responsibility. The rise of the unsecured book does warrant close monitoring, but here's the silver lining: ICICI Bank's asset quality is on the upswing. 

Gross and net NPA ratios are on the decline, and restructured assets remain flat at just 0.4 percent of the advances book, well-covered with a substantial 31 percent provision.

Now, here's where the future gets interesting. The bank's management anticipates a bump in the cost of funds over the next two quarters, which could squeeze margins. But don't hit the panic button just yet. 

The top line is set to stay strong, thanks to robust advances growth. Moreover, ICICI Bank boasts a total contingent provision of Rs 13,100 crore, amounting to 1.24 percent of the loan book. 

Coupled with a provision coverage ratio at 82 percent, this is like a financial safety net to keep credit costs in check.

The Showdown: ICICI vs. HDFC Bank

In terms of valuation, ICICI Bank is on par with HDFC Bank, its long-standing rival. But here's where the plot thickens. 

ICICI Bank has not only matched HDFC Bank in loan growth, funding profile, asset quality, and capital position but has also outperformed in key financial areas such as margins, provisioning buffer, and earnings growth.

A Bargain in the Making

In absolute terms, ICICI Bank's stock is currently trading at just 2 times the core book value estimated for FY25. That's a tantalizing proposition when you consider that ROA is above 2 percent, and ROE touched 19 percent in Q1 FY24.

Sure, earnings growth might normalize, but the real magic wand lies in the expansion of valuation multiples (re-rating).

If ICICI Bank sustains its current performance, it might just emerge as a shining star in the banking universe. Once considered a prime example of stressed assets, it could soon trade at a valuation premium to HDFC Bank, the Mr. Consistent of the Indian banking industry.

So, dear investors, keep an eye on this phoenix that seems poised to rise from the ashes. ICICI Bank's future could be brighter than you ever imagined, and it might just be the perfect time to paint a new financial picture with this contender.