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Motilal Oswal Report
ICICI Bank Ltd. has been delivering industry leading return on asset with the same being ~50 basis point higher than Axis Bank Ltd. over the past few years.
Axis Bank’s elevated credit-deposit ratio will constrain credit growth, while continued re-pricing of deposits will likely exert pressure on margins in the coming quarters as well. The capitalisation level for ICICI Bank remains strong with a tier-I ratio of 16%, which will enable healthy growth trajectory, while healthy accretion of retail deposits will be a key growth enabler.
We thus estimate ICICI Bank’s loan book to register a compound annual growth rate of ~18% over FY24-26E vs. 16% for Axis Bank. Also, while ICICI Bank is positioned well to benefit from operating leverage and grow the business on the back of strong technological investments, Axis Bank has been in an investment mode, which will thus keep the difference in cost-ratios of the two banks elevated.
Axis Bank is currently trading at a 1.5 times FY26E adjusted book and while the overall valuations look reasonable, the pressure on key operating metrics will limit stock performance in the near term and we continue to prefer ICICI Bank on steady return ratios and ability to deliver superior growth.
We thus estimate ICICI Bank to deliver FY26E return on asset/return on equity of 2.2%/17.8% versus Axis Bank RoA/RoE of 1.7%/17.1%.
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