Correction in ICICI, Axis Bank stocks can be a long-term opportunity

The two lenders posted strong performance in Q2, and analysts' target prices indicate upside of at least 35-40%

The performances of ICICI Bank and Axis Bank in the second quarter of financial year 2021-22 (Q2FY22) offer an interesting comparison. Axis Bank saw a small 0.07 per cent decline in margins sequentially and low growth in core pre-provision operating profits (PPOP).

Corporate advances decline sequentially, but there was a strong recovery in SME/retail. Lower provisioning was visible, boosting net earnings, which beat expectations. Fee income also grew, but slippages remained high.

ICICI Bank reported a strong Q2, with sequential growth in net interest income (NII) and net interest margin (NIM). It also had strong fee income trends, and beat expectations in both PPOP and net income. Business advances and retail/SME growth picked up, and fresh slippages declined.

Axis Bank’s profit after tax (PAT) stood at Rs 3,130 crore in Q2, up 86 per cent YoY. PPOP was Rs 5,930 crore, down 11 per cent YoY. However, provisions were Rs 1,740 crore, down from Rs 4,340 crore in Q2FY21 and Rs 3,300 crore in Q1. Slippages were Rs 5,460 crore, but recovery of Rs 4,760 crore helped push down NPA ratios. The restructured book was at 0.7 per cent of loans with provision coverage at 24 per cent. Gross and net NPA ratio was 3.53 per cent and 1.08 per cent, respectively, with provision coverage ratio (PCR) at 70 per cent.

The loan book grew 10 per cent YoY with retail loans up 16 per cent YoY. Retail loan disbursements rose 54 per cent QoQ, and SME portfolio grew 18 per cent YoY and 7 per cent QoQ, but corporate growth declined 5 per cent QoQ. CASA ratio improved 1 per cent QoQ to 44 per cent. The management said margins should improve in the near term.

ICICI Bank’s PAT rose 30 per cent YoY to Rs 5,510 crore. NII rose 25 per cent YoY, and NIM improved 11 basis point (bps) to 4 per cent. Growth in advances was 17 per cent YoY. Fee income grew 21 per cent YoY. PPOP of Rs 9,910 crore grew 20 per cent YoY.

Advances picked up 17 per cent YoY, with the domestic loan book up 19 per cent YoY. Business banking grew 12 per cent QoQ, Retail loans rose 5 per cent QoQ and SME segment picked up 11 per cent QoQ, but corporate loans declined 1 per cent QoQ. Average CASA improved to 44.1 per cent (up 0.4 per cent QoQ). ICICI Bank’s return on assets (RoA) was 1.9 per cent, higher than Axis Bank’s 1.8 per cent. Return on risk-weighted assets is also better for ICICI Bank at 2.8 per cent, versus Axis Bank’s 2.46 per cent. 

Axis Bank is trading at Rs 680 apiece, having fallen 9.6 per cent in November, while ICICI is trading at Rs 727, down 9.5 per cent. Both underperformed the Bank Nifty (down 8.6 per cent). 

Analysts have targets of Rs 950-1,080 for Axis Bank and Rs 1,000-1,100 for ICICI Bank. This may be a long-term opportunity.