ICICI Bank Q2 Review: The New 'Best In Class'?
ICICI Bank Ltd. reported a record profit for the second quarter, as loan growth and core income remained strong. The bank also reported its lowest level of net non-performing assets in nearly seven years, suggesting that it has finally shed the turbulence that followed the previous credit cycle.
Net profit for the quarter-ended September rose 29.6% to Rs 5,510.95 crore, as compared with Rs 4,251 crore a year ago. Net interest income was up 24.8% over last year to Rs 11,689.7 crore. It's net NPA ratio fell to below 1% while the gross NPA ratio fell to 4.82%.
Here's what brokerages had to say about the earnings:
Kotak International Equities
ICICI Bank has posted a solid 30% year-on-year earnings growth on the back of 20% operating profit growth and a 10% decline in provisions.
We believe ICICI Bank has decisively broken out of investors' perspective of being a pro-cyclical underwriter.
The bank has established best-in-class position in growth and profitability. It is being able to establish leadership position by making higher investments.
Maintain 'Buy' rating with fair value revised to Rs 900 compared to Rs 810 earlier.
ICICI continues to scale new heights of profitability every quarter.
Margins at 4% were the highest seen in the history. Improvement was driven by falling cost of deposits and lower interest reversals. Consequently return on assets for the quarter stood at 1.8%.
There has been a fall in overall gross NPA as well as retail gross NPA mainly led by better recoveries. Credit cost at ~144 basis points was the lowest seen since pre-Covid quarter of Q3 FY20.
Restructured assets at about 130bps and Covid contingency reserve at ~85bps remain at comfortable levels.
We believe further scope for improvement in return on assets exists as credit costs are expected to fall further and normalise around 120 basis points.
The only sore point is that slippages still are high at 3% and a more comfortable level will be below 2% in our view.
ICICI Bank remains top pick in the sector with 12-month price target of Rs 835.
ICICI Bank delivered strong results with pre-provisioning operating profit growth of 21%, driven by a margin beat.
Its gross slippages moderated to 0.7% of loans from 1% in the first quarter.
The bank is now consistently delivering the sector-best growth in loans and continues to cement its growth-leading position.
Recent trends suggest credit costs will likely undershoot.
We expect a return on risk weighted assets of 2.9%, which is similar to HDFC Bank Ltd.
We thus increase the target price from Rs 1,000 to Rs 1,100.
The bank reported a strong quarter with continued traction in net interest margin (up 10 basis points to 4%), improving core pre-provisioning operating profit, better asset quality and healthy advances growth.
NIM benefitted from continued decline in cost of funds and lower net slippages during the quarter.
We factor in credit costs of 90-95 basis points over FY23-24E.
Sequential loan growth in mortgage (6% quarter-on-quarter), unsecured credit cards/personal loans (9% quarter-on-quarter), business banking and SME portfolios (11-12% quarter-on-quarter each) were particularly strong.
With improving core operating metrics and healthy NIM/growth outlook, we expect the bank to trade at a multiple to 2.7x from 2.5x earlier.
We maintain our 'Buy' recommendation on the stock with a target price of Rs 890.
ICICI Bank once again beat street expectations with 30% growth in net profit driven by strong core profitability.
This was driven by strong credit growth at 17% year-on-year, historically high NIMs at 4% (10 basis points short of HDFC Bank), strong fees and dividend, and better asset-quality outcomes.
The bank has been delivering strong retail growth (20% year-on-year), while SME and business banking growth is also robust now. Corporate growth should revive soon too.
ICICI, armed with its strong product offerings, franchise network and superior digi-banking platform, should deliver better credit growth and thus core profitability as well.
Asset-quality outcomes amid the pandemic were better than expected, with the gross NPA ratio down 33 basis points quarter-on-quarter to 4.8%, while the restructured pool was contained at 1.3% of loans (versus HDFC Bank's 1.7%), with adequate provision buffer at 20%.
ICICI Bank remains our top pick, given its consistent outperformance. Retain 'Buy' and raise target price to Rs 950.