Morgan Stanley bullish on ICICI Bank; sees 34% upside

The brokerage firm, which sees 34 percent upside in the stock, believes that the strong digital capabilities have helped ICICI Bank improve market share in higher-margin segments, and there is further room to improve

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Shares of ICICI Bank were in focus on December 5 after global research firm Morgan Stanley retained the private sector lender as one of its top picks with a target price of Rs 1,250 per share.

The brokerage firm, which sees 34 percent upside in the stock, believes that the strong digital capabilities have helped ICICI Bank improve market share in higher-margin segments, and there is further room to improve. “The bank is gaining market share across granular higher margin profit pools (tax collections, transactions and trade. This is owing to improved digital capabilities as well as higher cross-sell/up-sell which is all coming at lower incremental costs. It noted higher penetration and deepening among high-quality corporates in recent years, the research firm said.

“ICICI Bank has also accelerated new-to-bank customer acquisitions via these digital assets. Overall, we expect a significant shift toward send-to-end digital originations at large private banks like ICICI, and this implies potential for significant operating leverage over the medium term – whether this flows through the bottom line or gets competed away owing to a) increasing competitive intensity and/or b)higher tech/employee costs needs to be seen.”

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Morgan Stanley believes that ICICI Bank should graduate to a compounding machine, and foresee continued re-rating over the next few years. Given the size of the long-term growth opportunity, investors have been willing to pay high multiples for financials that have displayed strong earnings compounding and avoided bad loan cycles. ICICI Bank is well placed for that, it feels.

Jefferies also has ICICI Bank as one of its top picks. The global brokerage believes that the lender’s focus is on smoother customer journey, digitisation and network expansion. SME, supply chain financing, ecosystem banking and retail are focus segments.

At macro level, management reaffirmed stronger growth with better retail borrower behaviour and corporate balance sheet. Despite no takeaways for near-term earning per se, visibility of growth runway is positive, it added.

At 11:25 hrs ICICI Bank was quoting at Rs 932.40, up Rs 1.60, or 0.17 percent on BSE. It has touched an intraday high of Rs 937.35 and an intraday low of Rs 928.50.