ICICI Bank Q4 earnings: Robust numbers can deliver up to 45% returns

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ICICI Bank on April 26 was the top gainer in BSE Sensex in early trade, rallying over 5% as it declared robust Q4 numbers on April 24. The private sector bank reported more than a three-fold jump in its standalone net profit to Rs 4,403 crore for the January-March quarter of 2020-21. Net interest income (NII) increased by 17% year-on-year to Rs 10,431 crore in Q4FY21 from Rs 8,927 crore in Q4FY20.

The net interest margin was up by 17 basis points (bps) to 3.84% in Q4FY21 as compared to 3.67% in the quarter ended December 31, 2020. On a yearly basis, it was marginally down by 3 bps to 3.87% Q4FY20.

Gross non-performing assets (NPAs) or bad loans of the bank fell to 4.96% of the gross advances by the end of March 2021 as against 5.53% by March 31, 2020. Net NPAs too came down to 1.14% as against 1.41%.

Here is what brokerages have to say about the stock post stellar Q4 earnings:

CLSA | Target Price: Rs 825 | Upside: 45% ICICI Bank delivered strong 4QFY21 results with a big core pre-provision operating profit PPOP beat (+22% YoY) and slippage at 0.75% of loans (better than expected). The key positive was the strong pick up in domestic loan growth (+18%YoY) which looks sustainable.

“Increase our earnings by 4%-6% factoring in better growth and NII. With an end to the past 5-6-year intense corporate credit cycle, its improving granularity of earnings and potentially ICICI Bank being the new growth leader among large banks, we expect its rerating cycle to continue,” said the global brokerage firm in its report.

Motilal Oswal | Target Price: Rs 750 | Upside: 32% ICICI Bank reported a strong quarter, led by healthy business performance across all business segments. Strong operating performance was aided by healthy NII growth (17bp NIM expansion), though weak other income affected net earnings. Asset quality remains under control with controlled slippages and total restructuring at 0.5% of loans. Provision coverage remains the best in the industry. The bank holds a COVID-related provision buffer of Rs 7,475 crore (1% of loans), providing comfort on anticipated normalization in credit cost. However, rising COVID-19 cases and regional lockdown would be a key to watch out for in the near term. The liability franchise continues to improve with healthy CASA growth. The bank has delivered double-digit RoE (~12.6%) for the first time post FY17 and expect RoA/RoE to improve to 1.7%/15.2% in FY23E.

Elara Capital | Target Price: Rs 720 | Upside: 26% ICICI Bank is closing in the gap with HDFC Bank on loan growth and core PPOP growth. Core PPOP growth for ICICI Bank in Q4 is higher than HDFC Bank’s and so is retail loan growth. While HDFC Bank’s asset quality and liability growth remain superior to ICICI Bank, if ICICI Bank can maintain its PPOP and loan growth momentum for the next few quarters, the stock’s discount to HDFC Bank could narrow ICICI Bank’s digital offering is amongst the best in the sector with minimum outages and good customer feedback. ICICI Bank’s mobile app was made available to non-bank customers four months ago. In a span of four months, the app has seen activation from 15 lakh non-bank customers. 90% of personal loans, 75% of credit cards, 56% of fixed deposits, 33% of term insurance and 64% of SIPs were sourced digitally in FY21.

Kotak Institutional Equities | Target Price: Rs 710 | Upside: 25%  ICICI Bank reported a stellar 3.6X yoy earnings growth on the back of 16% yoy operating profit growth. We note a solid recovery in loan growth at 14% yoy, healthy NIM profile at 3.7% and an unchanged NPL ratio despite FY2021 being a challenging year on account of Covid. The bank has ~1% of unutilized Covid provisions, which implies a return to normalcy on return ratios for FY2022-23 is now a high probability. ICICI Bank is likely to recover from the Covid episode faster than most players.

Antique Stock Broking | Target Price: Rs 705 | Upside: 24% ICICI Bank strong but under-utilized retail asset distribution (retail loans ex-mortgage was Rs 46.6 crore per branch vs. HDFCB Rs 82.5 crore), turnaround in wholesale segment profitability, low cost of funds with excess liquidity (domestic loan-to-deposit of 75%), high CET 1 (16.8%), strong coverage on NPLs (78%) and contingent provisions of 1.2% of loans provides all the ingredients for strong and sustainable future performance. Expect ROAs of 1.6-1.7% and core ROEs of 15-16%.

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