ICICI Bank share price today: "Buy"says Jefferies - Must-know highlights for investors

ICICI Bank share price today - Comfort on Quality; Clarity on Norms Key | Jefferies see earnings recovering from FY22 onwards with improved growth and lower credit costs. Jefferies maintains buy rating on ICICI Bank, raise their target price to Rs 570 (from Rs530) based on 1.8x Sep-22 adjusted PB. Jefferies hosted Rakesh Jha (CFO) for call with investors where he highlighted that economic activity is getting better & festive season went well. Management expects credit costs to normalize from FY22 & better capital and CASA will aid loan growth. NPL formation may be elevated in second half of FY21 but is adequately provided for. New holding company recommendations are in line with broader expectations but tax-neutrality can take time & dual-listing of Holding company and the bank needs to be watched. ICICI Bank share price today was Rs 475, up by 1.5%.

RBI's new report's relevance for ICICI Bank:  

The committee's report on moving incumbent banks with non-bank businesses to the NOFHC (Non-Operative Financial Holding Company) structure provides for a 5yr timeline after Government approves tax neutrality for the switch to holding company structure. Management highlighted that the construct of Holding company norms is largely in line with expectations, but awaits clarity on the requirement for dual listing of the bank. Also, regarding the merger of NBFC subsidiary with bank, clarity will be needed for the definition of 'similar activity' - this will be relevant for the need to merge ICICI HFC with the bank.

A good festive season & broader recovery:  

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Management indicated that recent trends in demand across products have been positive and the festive season has gone well. It expects disbursement trends to get back to pre-COVID levels by Q4 FY21. Mortgage and car loan are doing well, but unsecured loans and CVs are still lagging due to lenders' caution and weaker demand. SMEs are also seeing an improvement.
Provision-buffer sufficient to absorb COVID stress; BAU (Business as Usual) credit cost from FY22:  

Management expects slippages to be elevated in 2HFY21 as moratorium/standstill loans will be downgraded; also, full effect of daily-stamping of retail slippages will play-out. Still, it expects COVID provisions created by bank (1.5% of loans) to provide sufficient cover for these. It expects credit costs to normalize by FY22 to its target range of 25% of PPOP (1.2-1.3% of loans). Manangement reiterated expectation of restructuring in corporate & SME loans at <1% of overall loans. Management highlighted that there has been a significant shift in the quality in corporate loans over the last 5 years. The top-20 borrowers currently are very different from 5 years ago with much more granular exposures and all rated A and above.