ICICI Bank and Mastek: Weekly Recommendations

The two stocks recommended by SMC Global Securities’ Research Team this week are ICICI Bank and Mastek Limited. These two stocks have shown great potential with positive financial estimates for the next two financial years. So, let’s go through the details of the two stock recommendations for the period between November 25, 2024 and November 29, 2024.

ICICI Bank

ICICI Bank share price was at ₹1,278.20 (as on November 22, 2024) and its target price is set at ₹1,512 with an upside potential of 18%.

ICICI Bank: Investment Rationale

• ICICI Bank is a large private sector bank in India offering a diversified portfolio of financial products and services to retail, SME, and corporate customers. The Bank has an extensive network of branches, ATMs, and other touch-points. It has robust digital platforms which offer reliable, seamless, and scalable services, delivering best-in-class customer experience. It has added 26 branches and trimmed 982 ATMs in Q2 FY2025, taking the overall tally to 6,613 branches and 16,120 ATMs end September 2024.

• The business of the bank has increased 15% YoY to ₹27,75,001 crore end September 2024, driven by a 15% surge in advances to ₹12,77,240 crore. Deposits rose 16% to ₹14,97,761 crore at end September 2024. Advances growth was driven by retail loans rising 14% YoY to ₹6,93,507 crore at end September 2024, while credit to agriculture increased 16% to ₹78,789 crore and MSME 30% to ₹2,33,025 crore at end September 2024. The corporate credit has increased by 12% to ₹2,69,029 crore end September 2024. The overseas credit has declined 6% to ₹34,150 crore end September 2024.
• Net interest income (NII) increased by 9.5% YoY to ₹20,048 crore during the quarter. Net interest margin (NIM) was 4.27% in Q2 FY25 as compared to 4.53% in Q2 FY24.

• The bank has maintained stable asset quality in Q2 FY2025. The gross NPA ratio reduced to 1.97% as on 30 September 2024 as compared to 2.48% as on 30 September 2023. The net NPA ratio declined to 0.42% as on 30 September 2024 as against 0.43% as on 30 September 2023. The provision coverage ratio was steady at 78.50% at end September 2024 compared to 79.70% a quarter ago and 82.60% a year ago.
• The bank’s total capital adequacy ratio at 30 September 2024 was 16.66% and CET-1 ratio was 15.96% compared to the minimum regulatory requirements of 11.70% and 8.20%, respectively.
• The cost of deposits was 4.88% in Q2 FY2025 compared to 4.84% in the previous quarter. The bank expects margins to remain stable. The credit cost is expected to remain below historical levels.

ICICI Bank: Shareholding Pattern

Foreign investor’s shareholding is highest in the ICICI Bank at 37.76%.

ICICI Bank: Valuation

The bank is showing strong growth in business and improved asset quality. It is leveraging digital and technology across businesses to grow the risk-calibrated core operating profit. It is seeing increasing adoption and usage of its digital platforms by its customers. Thus, it is expected that the stock will see a price target of ₹1,512 in an 8 to 10 months time frame on a three-year average P/BV of 3.34x and FY25 (E) BVPS of ₹452.73.

ICICI Bank: Risk

• Economic slowdown
• Deterioration in asset quality

Mastek Limited

Mastek share price was at ₹3,228.90 (as on November 22, 2024) and its target price is set at ₹3,654 with an upside potential of 13%.

Mastek Limited: Investment Rationale

• Mastek is an enterprise digital and cloud transformation partner that engineers excellence for customers in industries such as healthcare and life sciences, retail and consumer, manufacturing, financial services, and the public sector, across 40 countries, including the UK, US, Europe, the Middle East, and Asia Pacific. A preferred Oracle, Salesforce, Microsoft, AWS, and Snowflake partner, Mastek has 5000+ employees and delivers right-fit solutions to both medium businesses and global Fortune 1000 clients.
• The company has entered into a strategic partnership with Innovaccer, a leading healthcare AI company to drive better outcomes at lower costs and meet contracted performance targets. This collaboration will help recalibrate Mastek’s extensive healthcare focus by integrating Innovaccer’s expertise in data, customer experience, AI, and analytics, enhancing service offerings, and delivering significant impact through a focused value-based care model.
• The company launched its icxPro platform with NVIDIA marking a significant stride in Mastek’s non-linear growth strategy. icxPro, an end-to-end, cloud-native platform, seamlessly integrates with the NVIDIA AI stack, enabling the development of production-grade generative AI applications for superior CX management. icxPro has demonstrated a 20% return on capital employed (ROCE) in the Manufacturing sector, with massive potential in the BFSI and Healthcare sectors. Its partnership with NVIDIA marks a pivotal step in advancing its AI-driven solutions.
• The deal pipeline continues to remain strong, with an order backlog of ₹2,195 crore, a growth of 17.9% on a Y-o-Y basis in rupee terms, and 10.9% in constant currency terms on a Y-o-Y basis.

• The Company added 14 new clients in Q2 FY25. Total active clients during Q2 FY25 was 380 as compared to 391 in Q1 FY25 reflecting deeper account mining and higher revenue per account.
• In Q2 FY2025 it reported revenue of ₹867.4 crore, a growth of 13.3% on a Y-o-Y basis. EBITDA margin improved to 16.5% as compared to 16.1% same period last year. EBITDA was up by 16.3% to ₹143.1 crore and net profit was up by 97.1% to ₹128.7 crore.
• As on 30th September, 2024, the company had a total of 5,505 employees, of which 3,821 employees were based offshore in India while the rest were at various onsite locations. Last twelve months attrition at 20.1% in Q2 FY25 in comparison with 20.9% in Q1 FY25.

Mastek Limited: Shareholding Pattern

In the overall shareholding of Mastek Limited, promoters have the highest shareholding of 36.23%.

Mastek Limited: Valuation

The performance of the company across the Americas, U.K., and European markets continued to be resilient and also driving growth. It continues to win and onboard new customers across the geography and strong deal backlog. The strong deal pipeline with an order book of ₹2,195 crore indicates future growth visibility. Thus, it is expected that the stock will see a price target of ₹3,654 in 8 to 10 months’ time frame on target P/E of 26x and FY26 EPS of ₹140.52.

Mastek Limited: Risk

• High Interest Rate
• Economic Slowdown

Conclusion

These two stocks, one from the banking sector and the other from the IT sector can reach their target price in the coming 8 to 10 months. But it is always better if you do your analysis before investing and set a stop loss target. To keep track of your invested stocks, open demat account with SMC Global Securities and invest on the go.

Reference:
https://www.smctradeonline.com/research/wise-money/241

Author: All Content is verified by SMC Global Securities.