Top Performing Indian Bank Stock of 2019 Has More to Run

(Bloomberg) -- India's top performing bank stock is getting more love from analysts even after its strong run of gains in 2019.

ICICI Bank Ltd., with a 45% climb this year that's the most among a gauge of the nation's financial stocks, has a recommendation consensus of 4.87 on a Bloomberg scale where 5 is a unanimous buy. That's close to its highest reading in at least a decade. The lender remains a buy for all but one of the 57 brokerages compiled by Bloomberg.

“The stock has done well, yet we think the scope for meaningful re-rating over the next 12-18 months is high,” Anil Agarwal, an analyst with Morgan Stanley, wrote in a note on Tuesday, after attending the bank's first analyst day in more than a decade.

The view comes amid a deteriorating economic environment where growth has slipped to the slowest pace in six years and the financial system continues to recover from a prolonged period of loan losses and a crisis at shadow banks.

ICICI Bank has also had its share of upheavals. Just over a year ago, Sandeep Bakhshi took over as chief executive officer after Chanda Kochhar resigned following allegations of corporate governance violations.

Here's a roundup of brokerage views on why they think ICICI shares are a buy.

Nomura (Adarsh Parasrampuria)

• One bank, one RoE target well entrenched; expect ROE of 16%-17% in next 12-18 months compared with bank's guidance of 15% by 1QFY21
• Bank can continue to grow in most types of retail loans as market share is only ~8% of system's assets in category
• Estimate pre-provisioning operating profit, or PPoP, to record 19% CAGR over FY19-22
• Expect re-rating to continue with improving quality of earnings and lower credit cost

Ambit (Pankaj Agarwal)

• Digitization in retail banking to help improve PPoP and ROE by reducing operating expenditure, cost of acquisition
• Linking top management incentives to overall performance of bank could lead to better performance
• Bank can achieve 16.5% ROE by FY21; remains buy with PT of 526 rupees

Citigroup (Manish Shukla)

• Bank is picking up business from better-rated companies
  • Emphasis on shorter and medium-term loans
• Reduced chances of big loans turning bad, diverse range of products to allow it to grow balance sheet
• Share price offers a reasonable risk-return trade-off; business offers meaningful upside in medium term
• ICICI Bank is top sector pick; PT raised to 600 rupees from 510.40 rupees

Morgan Stanley (Anil Agarwal)

• Core PPoP likely to compound at above 20% for multiple years
• Decline in credit cost to drive strong earnings, ROE expansion
• Rated overweight with PT 775 rupees

To contact the reporter on this story: Nupur Acharya in Mumbai at nacharya7@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Margo Towie, Teo Chian Wei

©2019 Bloomberg L.P.

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