ICICI Bank vs HDFC Bank: A Comprehensive Analysis for Investors, Including Share Price Targets
According to InCred Equities, both ICICI Bank and HDFC Bank are facing challenges, with HDFC Bank dealing with issues related to deposit growth and weak Liquidity Coverage Ratio (LCR) at 110 per cent. The brokerage suggests that any potential deposit rate hike by HDFC Bank should be followed by ICICI Bank to manage its market share effectively.
Among the two private lenders, analysts generally hold positive views, but ICICI Bank is favored as the preferred pick by some brokerages. While HDFC Bank’s valuations are considered reasonable, concerns about merger-related uncertainties are cited as a factor, making ICICI Bank appear as the lower-risk choice in the current domestic macroeconomic context.
Favorable Aspects of HDFC Bank
In the comparison between HDFC Bank and ICICI Bank, InCred Equities highlights several factors in favor of HDFC Bank. Despite facing challenges related to deposit growth and a weak Liquidity Coverage Ratio (LCR) at 110 percent, HDFC Bank is suggested to consider a probable deposit rate hike. Additionally, if HDFC Bank takes such a step, InCred Equities recommends that ICICI Bank should follow suit to manage its market share effectively.
Moreover, HDFC Bank is recognized for its superior access on the yield front, particularly in unsecured retail, and SME/MSME loans, owing to a broader branch network and enhanced reach in rural and semi-urban areas. The analysis suggests that both banks are comparable on the margins front, but HDFC Bank is expected to benefit from improving operating leverage, driven by the growth in large-ticket mortgage loans resulting in lower operating expenses.
In conclusion, assuming a similar asset quality profile, HDFC Bank is perceived as being better positioned than ICICI Bank in terms of growth (due to enhanced reach) and profitability (due to improved operating leverage). The projection anticipates a 26.1 percent Compound Annual Growth Rate (CAGR) in Profit After Tax (PAT) for HDFC Bank over FY23F-26F, in contrast to ICICI Bank’s expected 15.9 percent PAT CAGR.
Strong Points for ICICI Bank
In support of ICICI Bank, several key strengths and positive aspects have been highlighted by various analysts. Nuvama acknowledges 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, ICICI Bank is anticipated to exhibit higher loan growth in FY25 compared to HDFC Bank, with a sustained higher Return on Assets (RoA) than other large banks.
In a banking sector facing deposit constraints, ICICI Bank is positioned as a “must-own stock” and is considered the lowest-risk investment concerning the Indian macroeconomic landscape. The absence of quarterly aberrations reported by other large banks enhances ICICI Bank’s appeal. Despite currently trading at a 10 percent premium to HDFC Bank, this valuation is deemed justified given the relative earnings performance of the two banks.
Elara Securities emphasizes ICICI Bank’s resilience in the banking sector, projecting steady earnings even in challenging conditions. With merger-related uncertainties affecting HDFC Bank, ICICI Bank is perceived as a clean play with best-in-class RoA. The return on risk-weighted assets for ICICI Bank has notably improved and now surpasses that of HDFC Bank. Given these factors, Elara Securities maintains a positive outlook, designating ICICI Bank as its top sectoral pick.
Nomura India and Motilal Oswal Securities also express their preference for ICICI Bank, citing it as their preferred banking pick. Kotak acknowledges ICICI Bank’s strong earnings performance but notes that the stock’s price performance has been somewhat disappointing. However, ICICI Bank remains one of its top picks, and sustained superior returns could justify its premium valuation in the medium term.
Target Prices Comparison
When comparing target prices, ICICI Bank and HDFC Bank exhibit differing potential upsides, as per Trendline. The average target price for ICICI Bank stands at Rs 1,210, suggesting a potential upside of 16%. On the other hand, HDFC Bank’s average target price of Rs 1,966 indicates a more substantial potential upside of 35%.
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