Will ICICI Bank double in 3-4 years?

If you look at the kind of drivers that are embedded in ICICI Bank, there is a good chance that you could see a doubling of this stock in the next three to four years, says Ajay Bagga.

Below is the transcript of Anand Tandon and Ajay Bagga's interview with CNBC-TV18's Menaka Doshi and Senthil Chengalvarayan.

Menaka: It is only fair that I read out for you a bit of the rationale for why Bank of America Merrill Lynch thinks that this stock can double in three to four years. They have said that ICICI Bank 's profitability has improved sharply in the past five years but trades at a five year P2B cycle average and large discount to many peer banks. We think that it is set to change and the stock is likely to re-rate as the return on equity (RoE) rises from 14 percent to 18 percent by FY18. They believe that it is relative to peers, it is the cheapest private bank with comparable returns providing best risk reward; that is the rationale for why they think the stock can double in the next two to three years. Would you agree with that?

Bagga: If you look at the kind of drivers that are embedded in the stock, there is a good chance that you could see a doubling of this stock in the next three to four years. I would say nearer to four years on a mathematical basis but probably on a sentimental basis you will get nearer to three years.

Senthil: Any stock that is seen as a proxy to the Indian economy and ICICI Bank would certainly fall in that category. What is expected to do well if the India story is going to be as shining as most people seem to think? Does ICICI stand out in anyway both from valuation point of view and performance?

Tandon: As you mentioned the valuation related to the other private sector banks is a little lower, not very substantially but even then it is lower. There is no doubt that over the last few years ICICI Bank has managed to get its act together. There was an over emphasis on the asset that they had put up overseas which were not performing, still aren't performing and the bank has been struggling to get some of that money back.

So, a lot of effort has been spent in terms of trying to get the domestic franchise back up again, a lot of investment has been made in branch expansion and so on, the assumption that it will bear fruit is reasonable assuming that nothing dramatic happens with the competitive scenario. So, the real joker in the pack has to be that whether or not the public sector banks also wake up given the fact that the government seems to be in the mod to shake up the organisational structures even there.