ICICI Bank, SBI, Federal Bank and more: Axis Securities lists top 6 bank, NBFC picks post Q4 results; check full list

Brokerage house Axis Securities has picked ICICI Bank, State Bank of India, Bank of Baroda, and Federal Bank as its top banking picks post the March quarter (Q4FY24) results; and recommended CreditAccess Grameen, Cholamandalam Investment as top NBFCs (non-banking finance companies) to pick.

Banking Q4 Review

Reviewing the Q4 results for the banking space, the brokerage pointed out that banks, including Small Finance Banks (SFBs), in its coverage have sustained robust credit growth, aligning closely with anticipated 17 percent year-on-year growth (excluding HDFCB). While some banks have voiced concerns regarding corporate growth due to fierce pricing competition, several larger banks remain confident and committed to pursuing growth in this segment, it said.

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The brokerage further noted that the net interest margins (NIMs) pleasantly surprised most banks, with larger banks (excluding ICICI Bank), witnessing margin improvement in the range of approximately 4-8 basis points (excluding one-offs). Conversely, mid and small banks continued to experience margin compression, albeit at a decelerated pace. Slippages during the quarter were under control whereas, asset quality remained largely stable, it added.

Despite these margin pressures and the ongoing rise in cost of funds (CoF) due to rate hikes on deposits by some banks, the net interest income (NII) growth for its covered banks slightly exceeded expectations. While CoF is expected to peak out, margin pressures may persist for the next few quarters. However, the NIM contraction cycle in FY25 is projected to be less severe compared to FY24, it forecasted.

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NBFC Q4 Review

For NBFCs, it stated that during the quarter, they achieved a remarkable Asset Under Management (AUM) growth of approximately 31 percent year-on-year, meeting estimates. Q4, being seasonally strong, saw a significant rise in disbursements across segments. Margins remained mostly stable, with a slight negative bias for a few NBFCs.

Consequently, NBFCs under its coverage reported an in-line NII growth of about 29 percent YoY. Asset quality remained stable for most lenders, except for a slight deterioration among microfinanciers. Credit costs stayed under control for most lenders, it added.

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Top stock picks - Banks + NBFCs

ICICI Bank: The brokerage has a ‘buy’ call on the private sector lender with a target price of ₹1,325. As per the brokerage, ICICI Bank reported another strong quarter, showcasing impressive credit growth, healthy margins, and robust asset quality, resulting in steady credit costs. The lender remains Axis' top pick among banks.

Despite multiple challenges, ICICI Bank delivered a strong performance in FY24. While margin pressures may be present in the near term, moderate growth in operating expenses and low credit costs will support a robust RoA delivery of 2.2-2.3% over FY25-26E. Axis anticipates strong business growth with advances/NII/earnings expected to grow at a CAGR of 17/14/13% over FY24-26E. Its positive outlook is based on ICICI's strong retail-focused liability franchise, buoyant growth prospects, stable asset quality with healthy provision coverage, adequate capitalisation, and potential for robust return metrics.

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SBI: The brokerage has a ‘buy’ call on the largest public sector lender with a target price of ₹1,010. The brokerage noted that SBI management remains confident in achieving sustainable growth of 13-15%, aligned with India's expected growth rate of 7-8%. This trajectory is supported by stable margins, anticipated to remain at 3.30%.

SBI remains the best play among PSU banks due to its healthy provision coverage ratio (PCR), adequate capitalisation, strong liability franchise, and improved asset quality outlook. These attributes position it well to capitalise on the resilient Indian economy, noted the brokerage.

Bank of Baroda: The brokerage has a ‘buy’ call on the public sector bank with a target price of ₹340. Axis expects the bank's credit growth to reach 14-15% for FY25.

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BOB aims for a 12-14% growth in its loan books. The bank's strategy to reduce its corporate loan mix should enhance resilience during weaker business cycles. It targets a loan deposit ratio of 80-82% and a NIM of 3.15%. Slippages are projected at 1-1.25%, with credit costs remaining around 1%. Asset quality showed strong improvement in Q4FY24. The management intends to maintain slippages within the 1-1.25% range, and credit costs are expected to stay below 1% over FY24-26, said Axis.

Federal Bank: The brokerage has a ‘buy’ call on the private bank with a target price of ₹205. The brokerage noted that FB anticipates sustaining credit growth momentum into FY25, aiming for advance growth of approximately 18%. The bank also aims to replicate this growth in deposits, leveraging its expanded footprint across the country. Improved CASA deposit accretion, particularly in areas where FB traditionally had less presence, is expected to continue. Credit and deposit growth are projected to remain healthy at around 18% CAGR over FY24-26, it further said.

FB remains confident in its ability to improve RoA by 4-5bps annually, driven by factors like improving margins from high-yielding segments, robust fee income growth, operating leverage, and controlled credit costs. Expected RoA/RoE for FY25-26E is 1.3-1.4%/14-15%, it predicted.

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CreditAccess Grameen: The brokerage has a ‘buy’ call on this NBFC with a target price of ₹1,900. CAGrameen anticipates robust growth in its core MFI business through new branch expansions and customer acquisitions, aiming to double its GLP over the next 3-4 years, reflecting a 24-25% CAGR AUM growth. Currently, Retail Finance (RF) accounts for 2% of its portfolio mix, with plans to elevate this to 12-15% over the next 4 years to reduce attrition and cater to evolving customer needs, said the brokerage.

Despite premium valuations, CAGrameen is favored among microfinanciers due to its strong rural presence, customer-centric approach, robust technology infrastructure, effective risk management framework, and adequate capitalisation, positioning it for superior performance over the medium to long-term, it explained.

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Cholamandalam Investment & Finance Company: The brokerage has a ‘buy’ call on the NBFC with a target price of ₹1,480. CIFC management anticipates a 20-25% growth in disbursements, driven by a strong performance in the vehicle finance portfolio, particularly in passenger vehicles, MUVs, and used vehicles, despite a slight softness in SMEs. They aim for a new business to represent 15% of the total AUM in the coming years, said the brokerage.

Margins are expected to remain stable, with a reported NIM of 7.5% for FY24, sustained by repricing in the vehicle portfolio and expanding home loans in Tier 2 and Tier 3 towns, it noted. CIFC projects sustained growth momentum with AUM growing at 25% in FY25. Despite substandard growth in certain segments, stable margins and strong AUM growth are expected to drive healthy NII growth, it added. With stable asset quality and no signs of significant stress, CIFC is poised to maintain an ROA of 2.3%+ over FY25-26E, forecasted Axis.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.