ICICI Bank Q1 Review: Brokerages Up Target Prices Unfazed By Asset Quality Concerns

Analysts have hiked price targets for ICICI Bank Ltd., defying concerns over the private lender’s asset quality due to the second wave of Covid-19 infections.

Motilal Oswal highlighted the steady mix of high-yielding loan segments such as retail and business banking loans, deployment of excess liquidity and the bank’s rising low-cost liability franchise which aided margin expansion. “We expect return on assets and return on equity to improve to 1.8% and 15.3% (respectively) for FY23E,” the brokerage said in a report, as it raised its target price for the stock by 23% to Rs 835 apiece.

ICICI Bank saw its core income jump 18% over the year earlier and 4.8% sequentially in the three months ended June. Net interest margin improved to 3.89%, up 5 basis points quarter-on-quarter.

The bank’s advances rose 17% year-on-year, aided by a 20% retail loan growth. Deposits, too, increased 15.5%, with term deposits up 9% over the prior year.

“The broad-based growth across product categories and their relatively small market share across the key retail segment means that ICICI could become the market leader in terms of growth,” analysts at Investec Capital Services said, raising its target price to Rs 790 apiece from Rs 715.

Asset Quality Pressures

Niranjan Karfa, Amit Nanavati and Tanuj Kyal of Nomura said the addition of bad loans during the quarter at Rs 7,231 crore was higher than expected.

Collection efficiency dipped through most of the first quarter, owing to the second Covid-19 wave. It, however, picked up in June. Retail and business banking loans contributed to 94% of the overall slippages during the quarter, with collections declining in the commercial vehicle and gold loan portfolios.

Slippages from ICICI Bank’s mortgage lending portfolio remained steady when compared to a year ago, while those from credit card and personal loans dropped, analysts at Nomura and Motilal Oswal said.

According to HSBC Global Research, that raised price target for ICICI Bank to Rs 800 from Rs 700, the “slippages in the quarter were higher than estimated. But it cannot be attributed to weak underwriting and not to circumstantial stress in Q1 FY22. Further, most of the slippage is in secured loans and will not lead to high credit losses.”

Total stressed loans, including non-performing assets, restructured loans and loans to borrowers rated BB and below, rose to 8% of the book in the first quarter compared with 7.5% in the preceding three months, Nomura said in a note. The brokerage, too, increased its price target from Rs 690 to Rs 790, implying an upside of 16.7%.

Loans to lower rated corporate and small business customers rose to Rs 18,100 crore as on June 30, 2021 compared with Rs 17,500 crore in March.

“Management expects further improvement in collections and decline in overdues in the coming quarters,” Nomura said.

In the April-June quarter, ICICI Bank reported restructured loans worth Rs 3,891 crore, including Rs 925 crore worth retail loans and Rs 2,956 crore of corporate loans. The bank also wrote back floating provisions worth Rs 1,050 crore, while increasing provisions toward retail NPAs by Rs 1,200 crore.

Separately, Credit Suisse, too, has upped its target price for the bank to Rs 740 from Rs 660.

Shares of ICICI Bank pared all their losses to trade 1.3% higher around 11:45 a.m. All the 50 analysts tracking the stock recommend a ‘buy’. The average of the Bloomberg consensus 12-month price targets implies an upside of 14.6%.