Nomura expects ICICI Bank, Axis Bank to get re-rated

Mumbai: Foreign brokerage Nomura said it sees more legs to the re-rating story of corporate private lenders Axis Bank and ICICI Bank even as these stocks are sharply up.

Raising target price on ICICI Bank by 8.5% to Rs 700 and on Axis Bank by 10.5% to Rs 1050, Nomura said both the lenders remain its top sector picks.

Shares of ICICI Bank ended down 0.4% at Rs 538.75 on Friday, and those of Axis Bank ended down 1.9% at Rs 742.90. ICICI Bank's stock is up 48% in the last one year and Axis Bank shares have gained 22%.

Corporate private banks have got re-rated in the last one year as the corporate non-performing assets provisioning cycle is nearing an end and investors are increasingly acknowledging the granularity of the income and balance sheet, leading to sustainable pre-provision operating growth, said Nomura.

"...retail segmental credit costs of ICICI/Axis are at par or lower than retail banks and given the loan mix differences, overall credit costs for banks like ICICI/Axis could normalize at lower levels than HDFC Bank which is currently not factored into consensus/our estimates," said Nomura.

In the September quarter, asset quality of ICICI Bank improved as gross NPAs eased to 6.37% in the quarter compared to 8.54% in the corresponding quarter in the previous year and 6.49% in the quarter ended June 2019.

Gross NPA and Net NPA ratios for Axis Bank stood at 5.03% and 1.99%, respectively, for the September quarter, compared with 5.25% and 2.04% in the June quarter.