Global brokerage firm Morgan Stanley said that shares of private lender ICICI Bank Ltd have the potential to double in the next two years.
The firm expects ICICI Bank’s stock price to increase by 55% to Rs 775 per share in one year and 100% to Rs 1,035 in two years. The stock closed the session on Wednesday at Rs 506.75, down 0.8% from its previous close. Notably, it has surged over 41% in the last one year.
Morgan Stanley said that ICICI Bank is about to witness a ‘super-normal’ profit cycle on the back of market share gains and lower credit cost. This happens when big lenders start eating into the loan market share, while deposits also start moving quickly into private banks. “A large part of the share gain is concentrated in top three lenders, including ICICI Bank,” the brokerage said.
Morgan Stanley added, “The funding franchise is entrenched, and ICICI’s cost of funds is now among the lowest in the group, implying a low risk of adverse selection unlike in the past. Deposit growth is at a decadal high and loan spreads and NIMs (net interest margins) are strong. This will likely drive 22% CAGR (compounded annual growth rate) in core pre-provision operating profit (PPoP) between FY2019 and FY2022.”
Asset quality is likely to improve quickly, too, as the brokerage expects a sharp decline in provisions in FY20 formation of new non-performing loans slows. “If we are correct on balance sheet and earnings progression, there could be material re-rating over the next few quarters,” Morgan Stanley said.