Key insights
- The post argues ICICI Bank (IBN) is undervalued due to concerns about normalizing credit costs, despite strong earnings growth and a clean balance sheet. Macro risks include high crude oil prices and INR depreciation. The author sees long-term upside from India's debt-to-GDP ratio converging with developed markets, benefiting top private banks. Limited US market influence as it's focused on a single foreign bank.
Don't post here much. Last DD I put up worked out so figured I'd write up what I'm putting money into now.
IBN. ICICI Bank. India's #2 private lender, ADR on NYSE.
Trading at $27.60, P/E 16.2x. That's the lowest multiple it's had in 5 years (range was 17-22x). FY26 just printed record earnings, EPS compounding 20%+ over 4 years, ROE 15.3%. Stock down ~19% from peak while the business is at all time highs.
the reason for the compression is: provisions went from ₹191B in FY24 to ₹56B in FY26, down 70%. Credit cost at 38bps is unsustainable, normalizes to maybe 80bps over the next two years. So earnings growth slows from 20% to maybe 10-12%.
Still cheap at 16x with that growth.
NII compounded 18% over 4 years. NIM 4.32% is best in class for India. Net NPA 0.33%, book is clean. Loan mix rotating right way, business banking +24% YoY, mortgages +13%, rural+gold +25%. Cards down 5.6% which is fine.
IBN owns ICICI Lombard (general insurance, separately listed, trades 40x), Pru Life, AMC, broker. Stack the parts up at fair multiples and you get $100-110B vs $98B market cap.
vs HDB: 15.3% ROE vs 10.8%, D/E 0.58 vs 0.97, basically same P/E. HDB is still digesting the HDFC merger. IBN has the operational lead right now.
Macro risks: Brent at $106. India imports 85% of crude. Sustained $110+ forces RBI to pause cuts. INR at 94, that's a 3-5%/yr drag on USD returns.
India debt-to-GDP is 55%, China 190%, US 250%. As that converges over 10-15 years, top-3 private banks eat. This is the real reason to hold.
Curious what's the bear case