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.

Macquarie

• 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.

CLSA

• 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.

Dolat Capital

• 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.

Emkay

• 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.