Stock Showdown: ICICI vs. HDFC – Unveiling Must-Own Potential and Share Price Targets

ICICI and HDFC Banks Face Deposit Dilemma: InCred Equities Highlights Challenges and the Need for Strategic Rate Moves

1. Margin Parity: HDFC Bank and ICICI Bank share a similar standing on the margins front, indicating comparable financial performance in this aspect.
2. HDFC’s Deposit Challenges: HDFC Bank is grappling with issues related to deposit growth and a weak Liquidity Coverage Ratio (LCR), posing challenges to its financial stability and market position.
3. ICICI’s Steady Earnings Resilience: Analysts suggest that ICICI Bank, in contrast to HDFC, is better positioned to weather the challenges, attributing this resilience to its ability to maintain steady earnings despite the overall market tide.

Analysts hold positive views on both ICICI Bank and HDFC Bank, but several brokerages favor ICICI Bank as their preferred pick. Despite reasonable valuations for HDFC Bank, concerns about merger-related uncertainties weigh on its attractiveness. ICICI Bank is perceived as a lower-risk option in the context of domestic macroeconomic factors, making it the preferred choice for some analysts.

In Favor of HDFC Bank: InCred Equities Highlights Strategic Advantages Despite Challenges

InCred Equities argues in favor of HDFC Bank, acknowledging its struggles in deposit growth and weak Liquidity Coverage Ratio (LCR) at 110%. The case suggests that any deposit rate hike by HDFC Bank would necessitate a similar move by ICICI Bank to maintain market share.

Moreover, HDFC Bank is positioned favorably in terms of yield, particularly in unsecured retail, SME/MSME loans, backed by a broader branch network and enhanced rural/semi-urban reach compared to ICICI Bank.

Despite both banks having similar margins, InCred Equities sees potential for HDFC Bank to benefit from improving operating leverage, driven by the growth in large-ticket mortgage loans. This growth is expected to lead to lower operating expenses, providing a positive trigger for HDFC Bank’s performance.

According to the analysis by InCred Equities, if both HDFC Bank and ICICI Bank have a comparable asset quality profile, HDFC Bank is considered better positioned for growth and profitability. This advantage is attributed to HDFC Bank’s improved reach and enhanced operating leverage. The expectation is that HDFC Bank will achieve a 26.1% Compound Annual Growth Rate (CAGR) in Profit After Tax (PAT) from FY23 to FY26, outpacing ICICI Bank, which is projected to have a 15.9% PAT CAGR during the same period.

In Favor of ICICI Bank: Nuvama Emphasizes Balanced Growth, Strong Metrics, and Low Risk

Nuvama underscores ICICI Bank’s consistent delivery of balanced and granular growth over the past two years. With a robust balance sheet, better-than-expected net interest margin (NIM), and comfortable liquidity, Nuvama anticipates ICICI Bank’s loan growth in FY25 to surpass that of HDFC Bank. Furthermore, it expects ICICI Bank’s Return on Assets (RoA) to remain higher than other large banks.

In a deposit-constrained sector, Nuvama sees ICICI Bank as a ‘must-own stock,’ portraying it as the lowest-risk play in the Indian macroeconomic landscape. Nuvama dismisses quarterly aberrations reported by other large banks, highlighting the stability of ICICI Bank’s performance. Despite currently trading at a 10% premium to HDFC Bank, Nuvama believes this premium is justified by the relative earnings performance of the two banks.

Investor Confidence in ICICI Bank: Analysts Favor Steady Earnings and Best-in-Class RoA

Elara Securities highlights ICICI Bank’s resilience amid sectoral challenges, emphasizing its steady earnings against the banking industry strain. With merger-related uncertainties affecting HDFC Bank, Elara sees ICICI Bank as a clean play with a best-in-class Return on Assets (RoA). The return on risk-weighted assets for ICICI Bank has notably improved, surpassing that of HDFC Bank. Elara suggests ICICI Bank’s high-quality granular earnings justify a premium, maintaining a “BUY” recommendation with a revised target of Rs 1,214.

Nomura India and Motilal Oswal Securities also express a preference for ICICI Bank, considering it their preferred banking pick. Despite a somewhat disappointing price performance, analysts like Kotak acknowledge ICICI Bank’s strong earnings but note the need for sustained superior returns to justify its current peak valuation in the coverage universe. ICICI Bank remains one of their top picks in the banking sector.

Target Prices: ICICI Bank Eyes 16% Upside at Rs 1,210, While HDFC Bank Aims for a 35% Surge at Rs 1,966

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