ICICI Bank has a valuation gap with HDFC Bank. | Techno Glob


There were several positive takeaways for investors in ICICI Bank Ltd from its March quarter (Q4FY22) earnings. improving asset quality; low cost; and good loan growth helped Q4 net profit beat expectations. Also, private sector borrowers’ domestic net interest margin (NIM) and return on assets were at an all-time high in Q4.

Close competitor HDFC Bank Ltd also saw lower provisions and stable asset quality in Q4. However, At 4%, its core NIM hit a multi-quarter low, dragged down by higher growth in the low-margin corporate loan segment. In the case of ICICI Bank, NIM rose 4 basis points to 4% sequentially, while domestic NIMs remained at an all-time high at 4.12%, analysts noted. A base factor is 0.01%

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Analysts said ICICI Bank’s high-margin retail lending segment and reduction in excess balance sheet liquidity are some of the forces that have kept its margins sustainable. They warned that saying it was lower than the cost of funds could be a risk to its margin prospects.

However, its valuation gap with HDFC Bank is seen narrowing. “ICICI’s NIMs have improved steadily over the quarter, but for HDFC Bank, they have been limited over time. This helped ICICI Bank to bridge the value gap. As margin levers increase, it is likely to decline further,” said an analyst at a local brokerage house on condition of anonymity.

Emkay Global Financial Services Ltd. For HDFC Bank it is 2.2x (standalone) and 2x (consolidated), while ICICI Bank’s stock is trading at 1.8x its FY24 earnings estimate. . Analysts say ICICI Bank has bridged this gap faster than expected due to its strong performance.

HDFC Ltd’s merger weighed on sentiment on HDFC Bank stock, which has fallen about 18% since the merger was announced on April 4. There are concerns about the speed of the transition. Also, its technical issues have only recently been resolved.

“The recent price revision at HDFC Bank was assessed at par with ICICI Bank. ICICI Bank will do so through the merger of HDFC Bank. There is a relatively simple and clean business ahead, analysts at Kotak Institutional Equities said in a report dated April 24. “Although the rate of return or the difference in growth rate is not high. The scope for revenue enhancement will be higher in ICICI Bank than in HDFC Bank,” Kotak reported.

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