ICICI Bank Q2: Analysts expect sustained outperformance, up to 24% upside

ICICI Bank Q2 result review: ICICI Bank shares hit record high of Rs 942.7 apiece as the lender outperformed peers on every metric in Q2FY23

Shares of ICICI Bank hit a record high of Rs 942.7 apiece, surpassing their previous high of Rs 936.35 reached on September 15, as the lender outperformed peers on every metric, from core pre-provision operating profit and treasury to buffer provisions, in the July-September quarter (second quarter, or Q2) of 2022-23 (FY23). They eventually settled flat at Rs 924.6 apiece, against a 0.48 per cent dip in the S&P BSE Sensex.

Analysts remain bullish on the stock and see up to 24 per cent upside on steady performance, even on a high base of last year. The one-year target price ranges between Rs 1,025 and Rs 1,144.  

“ICICI Bank has cemented its stalwart position in Q2 with a highly efficient large liability franchise, robust capital ratios, strong provision coverage ratio (PCR), steady asset quality, and best-in-class return ratios. The stock provides an opportunity to benefit from growth in a profitable retail franchise, while providing significant rerating upside from a corporate growth uptick,” said JM Financial.

The brokerage believes the lender remains resolute on the path to deliver an average of 2 per cent and 17 per cent return on assets (RoA) and return on equity (RoE), respectively, over FY23 through 2023-24 (FY24).

On Saturday, ICICI Bank reported a 37 per cent year-on-year (YoY) jump in net profit to Rs 7,558 crore in Q2. Net interest income (NII) rose 26 per cent YoY to Rs 14,787 crore, while net interest margin (NIM) stood at 4.31 per cent, compared with 4.01 per cent in the previous quarter.

Further, the bank’s gross non-performing asset (NPA) ratio fell 22 basis points sequentially to 3.19 per cent at the end of Q2. Similarly, net NPA improved to 0.61 per cent, while PCR improved to 81 per cent.

“The prolonged corporate non-performing loan cycle had made it challenging to differentiate the bank from most of its peers despite evidence to suggest that the bank had changed for the better. While investors were starting to get comfortable after 2017-18, it was the Covid cycle which helped to establish this view quite firmly. From a business perspective, we believe that the strong liability book would help differentiate itself with its peers and provide a stable ground to make fewer mistakes,” noted Kotak Institutional Equities.

Analysts favour the bank’s credit growth of 4.8 per cent quarter-on-quarter (QoQ)/22.7 per cent YoY to Rs 9.39 trillion, driven by domestic and overseas credit books. Domestic credit book growth at 24 per cent YoY was broadly driven by all the segments. Business banking/small and medium-sized enterprises/retail/corporate segments increased 42.6 per cent/26.5 per cent/24.6 per cent/23.1 per cent YoY, respectively.

Deposit growth, meanwhile, picked up momentum and increased 3.8 per cent QoQ, against a decline of 1.3 per cent QoQ in the April-June quarter (first quarter, or Q1) of FY23.

Deposit mobilisation was driven by current account savings account deposits, where the composition came in at 46.6 per cent versus 46.9 per cent in Q1FY23 and 46.1 per cent in Q2 of 2021-22.

“ICICI Bank reported strong performance in Q2. A stable mix of a high-yielding portfolio (retail/business banking) and low-cost liability franchise is fuelling steady NII growth, resulting in margin expansion. The bank sees strong recovery in business trends across segments, while asset quality trends remain steady, with an industry-best PCR of around 81 per cent. We expect the bank to deliver a FY24 RoA/RoE of 2.1 per cent/17.2 per cent, and reiterate ‘buy’ with a target price of Rs 1,100,” said Motilal Oswal Financial Services.

Shares of ICICI Bank have been outperforming the market in the recent past: they rallied 17 per cent in the past three months, compared to a 7 per cent rise in the S&P BSE Sensex. In the past six months, the stock soared 25 per cent, against 6 per cent gain in the benchmark index.

Analysts expect this outperformance to continue on the bourses, albeit gradually, as they remain wary of the sustainability of NIM expansion and controlled credit costs.