Brokerages see more upside for ICICI Bank post strong Q2 performance
ICICI Bank is transitioning well from being a Beta stock to an Alpha stock and this should be key to a re-rating.
Shares of ICICI Bank advanced 6.67% to Rs 809.75 apiece, after the lender on October 23 reported its highest ever quarterly net profit of Rs 5,511 crore for Q2FY22, an increase of 30% over Rs 4,251 crore in the corresponding quarter last year. Profits rose on the back of a 19% growth in its domestic loan portfolio. The bank also managed to bring down its net non-performing assets to below 1%, the lowest level since 2014.
Net interest income, the difference between interest earned and interest expenses, has grown 25% to Rs 11,690 crore in Q2FY22, with 43 basis points improvement YoY (11 basis points QoQ) in net interest margin at 4%.
Total advances increased by 17% year-on-year and 4% sequentially to Rs 7,64,937 crore on September 30, 2021 from Rs 6,52,608 crore on September 30, 2020 and Rs 7,38,598 crore on June 30, 2021.
Total deposits increased by 17% year-on-year and 6% sequentially to Rs 9,77,449 crore on September 30, 2021.
Given the strong Q2 performance most brokerages have upgraded their price target on the bank. Here is what they have to say about the private lender and its Q2 performance.
Jefferies | Buy | Price target: Rs 1,000
ICICI Bank’s 2QFY22 results were impressive on most counts as a strong topline growth lifted profit by 30% YoY to Rs 5,500 crore bn & above estimate. Loan growth & wider NIMs (Net Interest Margins) were key drivers; the bank is gaining from ramp-up of SME/BB loans (+43% YoY). Covid-restructuring & slippages are below HDFC Banks, but total slippages would need to fall from 3.4% now.
Raise earnings estimates by up to 4% largely to factor in stronger top-line momentum. ICICI Bank is transitioning well from being a Beta stock (linked to credit cycles) to an Alpha stock (growth driven) and this should be key to a re-rating given the discount of ~30% to HDFC Bank and ~45% to Kotak Bank. We raise our price target to Rs1,000 (from Rs900) based on 2.8x Sep-23E adjusted price to book
CLSA | Rating: Buy | Price target: Rs 1,100
ICICI Bank is now consistently delivering sector-best growth. Recent asset quality trends indicate credit costs likely to undershoot. With further 3-5% earnings upgrade the return on risk-weighted assets to improve.
Credit Suisse | Rating: Overweight | Price target: Rs 1,025
ICICI Bank’s ability to raise core profitability coupled with lower credit costs to drive up RoE (Return on Equity). CET remains strong at more than 17% which will allow for continued growth. Credit cost to normalize going ahead leading improvement in RoE of over 15%. Credit Suisse has raised its EPS to estimate by 6-9% for FY22-24 on stronger NIMs (Net Interest Margins).
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