What Are Jefferies Top Buy Ideas In India’s Financials?

Global brokerage Jefferies is upbeat on six Indian companies in the financial sector due to their growth prospects.

The top Buy ideas in the financial sector are Axis Bank, ICICI Bank, State Bank of India, ICICI Lombard General Insurance, KFin Technologies and Shriram Finance, Jefferies said in an investor note.

Below are the brokerage’s key talking points on these top Buy ideas:

Axis Bank (Target Price: INR1,380)

• Axis Bank is one of its top picks. The past investments have made the franchise stronger and the bank is on track to deliver a 16%-18% growth in loans, improve its deposit profile, and sustain return on equity (ROE) of 18%.

• Integration with Citibank’s India retail platform is progressing well with limited attrition among staff and customers, and there’s significant scope for synergies on about 60 areas on revenues and cost. This can be RoE accretive from FY25.

• The bank is likely to deliver a 17% compound annual growth rate (CAGR) in normalized profit over FY24-FY26 and ROE of 18% in FY25.

ICICI Bank (Target Price: INR1,250)

• ICICI Bank is among top picks across Indian financials, as the bank can sustain superior growth, better asset quality, and higher ROEs.

• The bank is well poised to leverage on growth pickup, led by deeper penetration and higher market share in urban micro-markets in metro and near-metro areas.

• The bank's personal loan book has been holding up well, and asset quality in corporate loans continues to throw recoveries.

• The bank is expected to deliver a 14% CAGR in profit over FY24-FY26 and ROE of 19% in FY25.

State Bank of India (Target Price: INR810)

• Among public sector undertaking names, Jefferies likes SBI the most, as it is well positioned to deliver healthy earnings growth supported by low credit costs.

• With a strong deposit franchise (CASA Ratio of 41%) that keeps its funding costs low and high share in retail and corporate lending, it is well-placed to deliver a 13% CAGR in loans over FY24-FY26. However, net interest income (NII) growth will be lower due to margin compression.

• Profit growth should be strong at 16% CAGR, as credit costs should stay low at 40-50 basis points (bps) of average loans, as the improvement in corporate balance sheets and retail credit quality continues to play out.

• SBI is likely to report return on assets (ROA) of 1.1% and ROE of 18% in FY25.

ICICI Lombard (Target Price: INR1,730)

• The general insurance sector is well-placed to see a 14% CAGR in premiums over FY24-FY26, with private players growing faster at 17%. ICICI Lombard, being a market leader, should be a beneficiary of improved sector growth.

• Easing competitive intensity, partly reflecting the push from the regulator to meet the Expense of Management (EOM) limit of 30% (Cost/Premium), is forcing insurers to moderate growth/ improve profits. This will benefit ICICI Lombard as discipline improves.

• ICICI Lombard’s premiums are likely to grow at 17% CAGR over FY24-FY26, with operating profit growth of 16%.

• Indian general insurers will move to International Financial Reporting Standards (IFRS) norms from FY26 that can lift profitability as costs will be amortized, instead of being charged upfront. For ICICI Lombard, it could reduce combined operating ratio by 400bps and lead to a 27% higher profit.

KFin Technologies (Target Price: INR700)

• KFin is as an interesting way to ride the theme of financialization of savings in India, as it is a leading player in the duopoly of registrar and transfer agent services (RTA) for mutual funds.

• It will not only benefit from growth for asset managers but is also at an inflexion point to leverage investments in overseas RTA/fund-accounting platforms. It already has 50 clients with $7 billion in assets under management (AUM). This is a high-growth opportunity, and KFin may also explore M&A in western markets where it can leverage its platform better.

• KFin’s new platform XAlt, which is an integrated platform for AIFs that can handle multiple geographies (multi-market, asset-class, lingual, and currency), will lift its edge versus peers.

• These should support a 20% CAGR in profit over FY24-FY26 along with high cash surplus.

Shriram Finance (Target Price: INR2,750)

• Loan growth at the company has held up better than expected and can continue to surprise positively. Shriram’s AUM is likely to grow by 17% over FY24-FY26 (20% in FY24E), led by positive commercial vehicles outlook and rollout of Shriram City Union Finance’s products like MSME and gold loans to erstwhile branches.

• Some pressure on margins likely in the near term due to higher cost of funds, but there would be tailwinds to margins from increase in mix of higher-yielding gold, MSME, and personal loans in the next three years.

• Asset quality for Shriram has been broadly stable. Its credit cost is likely to be 2.2%-2.3% over FY24-FY26. The company should deliver a 17% EPS CAGR and 15% ROE over FY24-FY26.

Note: $1 = 82.8947 Indian rupees

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