ICICI Bank Q4 preview: Analysts see over 300% PAT rise; asset quality key

A healthy loan growth and leaner provisioning may aid ICICI Bank to report an over 300 per cent year-on-year (YoY) jump in net profit for the March quarter of financial year 2020-21 (Q4FY21), believe analysts. However, the lender’s asset quality may worsen, they fear, on the back of higher slippages as the Supreme Court’s stay on NPA declaration stands vacated. The lender is scheduled to report its Q4FY21 result on Saturday, April 24.

At the bourses, the lender’s stock has outperformed on the National Stock Exchange (NSE) and rallied nearly 9 per cent during the quarter under review, as against a 5 per cent gain in the benchmark Nifty50 index and a 6.5 per cent rise in the Nifty Bank index, ACE Equity data show.

Brokerage house Motilal Oswal Financial Services, for instance, presumes a 322 per cent YoY expansion in profit after tax (PAT) at Rs 5,160 crore for the quarter under study compared with a PAT of Rs 1,221.4 crore in the year-ago period (Q4FY20). Sequentially, this would mean a 4.4 per cent growth over December quarter’s (Q3FY21’s) profit of Rs 4,939.6 crore.

The floor expectation set by Edelweiss Securities pegs the parameter at Rs 4,618.7 crore, up 278 per cent YoY but down 6.5 per cent QoQ. 
 

The rise in net profit, analysts say, will be supported by much lower provisioning in the quarter and a double-digit growth in operating profit.

Kotak Institutional Equities remains extremely optimistic on this front and expects the Mumbai-based lender to cut provisioning by a striking 64.3 per cent on-year to Rs 2,128.7 crore. In the March quarter of FY20, the lender had set aside Rs 5,967.4 crore owing to the uncertainty due to the Covid-19 pandemic. In the previous quarter of the current fiscal, however, provisions were at Rs 2,741.7 crore. 

“We expect provisions to slide down to normalised levels and the bank is likely to use some of the Covid-19 provisions earlier this quarter. We are building slippages of 4 per cent but we see a solid commentary on recovery to normalised levels of their loan book from an asset quality perspective,” the brokerage noted in its result preview report. 
 

Prabhudas Lilladher, meanwhile, projects provisions at Rs 2,491.1 crore, down 58.3 per cent YoY. Further, it expects slippages of Rs 2,700 crore adjusting to pro-forma till 9MFY21.

On the operational front, the brokerage anticipates operating or pre-provision profit of Rs 8,627.3 crore, up about 17 per cent on a yearly basis from Rs 7,390.1 crore. On a quarterly basis, it would, however, mean a 2.2 per cent contraction from Rs 8,819.8 crore. 

An even better estimate by MOFSL pegs operating profit at Rs 9,420 crore, up over 27 per cent YoY. 

Loan book and interest income

While analysts at Kotak Institutional Equities expect ICICI Bank to report a loan book growth of around 13 per cent YoY, Edelweiss Securities believes the growth may be contained below 10 per cent. Therefore, the lender’s advances may grow anywhere between Rs 7.03 trillion and Rs 8.39 trillion. The lender’s loan book stood at Rs 6.45 trillion in Q4FY20 and at Rs 6.99 trillion at the end of Q3FY21.

Deposits, meanwhile, could show strong traction with flow coming to bigger private players and PSUs, say analysts. MOFSL expects the deposits to grow by 19 per cent YoY to Rs 9.17 trillion from Rs 7.71 trillion. In Q3FY21, deposits were at Rs 8.74 trillion.

Against this backdrop, analysts project the net interest income – the difference between income received on loans extended and interest paid on deposits – to grow up to 18 per cent YoY to Rs 10,560 crore. The NII was Rs 8,926.9 crore in Q4FY20 and Rs 9,912.5 crore in Q3FY21. Net interest margin (NIM) may stay around 3.6 per cent to 3.7 per cent. 

Asset quality among key monitorables

MOFSL remains cautious on the asset quality front and expects the lender’s gross non-performing asset ratio to worsen to 5.5 per cent from 4.4 per cent in Q3FY21. The net NPA ratio, meanwhile, is expected to decline to 1.2 per cent from 0.6 per cent QoQ. The brokerage would track the management’s commentary on asset quality, coupled with movement in stressed loans, given the rising Covid-19 cases in the country.

“The key monitorable will be downgrades to BBB and below list. Moreover, credit cost could be lower as the bank might choose not to make excess Covid-19 provisions,” opines Edelweiss Securities.