How does ICICI Bank compare with HDFC Bank after the market mayhem? - ET BFSI (2024)

• Banking
• 2 min read

Analysts are closely scrutinising ICICI Bank and HDFC Bank after the third quarter results saw the latter take tumble on the bourses. They see ICICI Bank as a lower-risk option amidst the intricacies of the domestic macro environment.

HDFC Bank faces challenges, including sluggish deposit growth and a Liquidity Coverage Ratio (LCR) resting at 110 percent. Despite these hurdles, the bank is strategically positioned with an expansive branch network and superior access to unsecured retail, SME/MSME loans. Analysts anticipate potential growth for HDFC Bank, particularly with an emphasis on enhancing operating leverage, especially in the realm of large-ticket mortgage loans.

ICICI Bank's strengths
Contrastingly, ICICI Bank showcases a consistent and balanced growth trajectory over the past two years, earning recognition for its robust balance sheet, better-than-expected net interest margin (NIM), and overall comfortable liquidity. The bank consistently outperforms in key financial parameters, including margins and provisioning buffer, establishing itself as a lower-risk play on the Indian macroeconomic landscape.

Valuation
While ICICI Bank matches HDFC Bank in various aspects, including loan growth, funding profile, asset quality, and capital position, it has outperformed on key financial parameters like margins and provisioning buffer. Despite trading at a premium over HDFC Bank, ICICI Bank's valuation remains below the historically assigned market-leading multiples.

Analysts' target prices suggest a potential 16 percent upside for ICICI Bank at an average target of Rs 1,210, while HDFC Bank's average target price of Rs 1,966 indicates a 35 percent upside.

Financial highlights
ICICI Bank's Q3 FY24 performance showcases a 19 percent YoY increase in the domestic loan book, with robust growth in retail credit and corporate credit. The bank's net interest margin slightly moderated, but the management expresses confidence in maintaining strong margins. Despite an increase in operating expenses, the cost-to-income ratio rose to 40.6 percent.

Overall, ICICI Bank's asset quality improved, with provisions on investments in Alternate Investment Funds. The bank holds a total contingent provision of Rs 13,100 crore, amounting to 1.1 percent of the loan book, supporting future credit costs and earnings.

An investment opportunity?
ICICI Bank, with its attractive valuation at 2.1 times FY25 estimated core book value, presents a compelling investment opportunity. The bank's solid return ratios, including a 2.3 percent Return on Assets (ROA) and a 19 percent Return on Equity (ROE) in Q3 FY24, position it as a favorable choice, even as it trades at a premium over HDFC Bank. The Q3 FY24 performance reinforces ICICI Bank's potential for sustained profitability and market confidence.

The recent narrowing of the valuation gap between ICICI Bank and HDFC Bank is attributed more to HDFC Bank's moderation induced by a merger and less to ICICI Bank's ascent. Analysts see room for re-rating, indicating that ICICI Bank's valuation premium over HDFC Bank could further expand if the former maintains consistent performance.

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