ICICI Bank's re-rating to be gradual, say analysts; see up to 36% upside

ICICI Bank Q1FY24 results: At the bourses, shares of ICICI Bank hit a new record high of Rs 1,009 on the BSE, rising 1 per cent in the intra-day trade

ICICI Bank Q1FY24 results analysis: With a solid 40 per cent year-on-year growth in net profit in the April-June quarter (Q1) of financial year 2023-24 (FY24), ICICI Bank has further cemented its place as the "best in class" bank, analysts said on Monday.

Lauding the lender's outperformance over peers in the recently concluded quarter, they have retained their 'buy' calls on the stock with target prices ranging from Rs 1,150 to Rs 1,350, suggesting a potential upside of up to 36 per cent over the next one year.

At the bourses, shares of the Mumbai-based bank hit a new record high of Rs 1,009 on the BSE in the intra-day trade, but settled at Rs 992, down 0.5 per cent. By comparison, the benchmark S&P BSE Sensex slipped 0.45 per cent, while the S&P BSE Bankex was down 0.55 per cent.

During the June quarter, ICICI Bank sustained its all-time high return on asset (RoA) of 2.4 per cent (up 5 basis points QoQ) with net profit at Rs 9,648 crore (up 40 per cent YoY/6 per cent QoQ)

Its core pre-provision profit (PPoP) grew 35 per cent YoY to Rs 13,900 crore as higher net interest income (NII; up 38 per cent YoY/3 per cent QoQ) was offset by higher opex. Net interest margins (NIMs) moderated by 12 bps QoQ to 4.8 per cent.

However, what impressed analysts the most was the sharp pick-up in deposit growth (up 18 per cent YoY/5 per cent QoQ), which had remained muted in the previous four quarters.

Domestic loan growth was robust and broad-based at 21 per cent YoY/4 per cent QoQ.

Against this backdrop, here's what key brokerages liked in ICICI Bank's Q1FY24 results:

Nomura | Buy | Target price: Rs 1,190

At 2.6x one-year forward book value per share (BVPS), ICICI trades at over 60 per cent premium to its 10-year average, but we expect this to be sustained due to clear visibility on return on equity (RoE; seen at 18 per cent over FY24-26), and earnings per share (EPS) compounding (16 per cent CAGR over FY23-26).

Jefferies | Buy | TP: Rs 1,240

Deposit growth improved to 18 per cent YoY, highest in nine quarters, and 5 per cent QoQ. We believe that with pick-up in deposit growth, the bank should be able to support loan growth; although it would add to some pressure on NIMs.

Nuvama Institutional Equities | Buy | TP: Rs 1,180

Management highlighted that cost of fund (CoF) will rise, but did not quantify the pace of increase. Opex growth will remain high as the bank continues to add employees and invest in digital.  We believe ICICI's earnings will continue to outperform the sector like in the last 14 quarters.

JM Financial | Buy | TP: Rs 1,155

ICICI Bank is clocking strong RoAs of 2.4 per cent for last couple of quarters and ability to sustain over 2 per cent RoAs while manoeuvring NIMs will ensure continued outperformance of the stock. ICICI Bank’s share of unsecured products is 13 per cent (vs 16.5 per cent for HDFC Bank) and we expect further rise in share of these products to offset the cost of funds impact on NIMs.

Prabhudas Lilladher | Buy | TP: Rs 1,180

While bank expects funding cost to go up, which could pressurize margins; we believe asset yields could be protected due to higher unsecured growth and repricing of bond portfolio. Hence we raise estimates for NIM for FY24/25 by 15/11bps.

Emkay Global | Buy | TP: Rs 1,330

We have raised our earnings estimates for FY24-26 by 3-7 per cent, led by better margins/fees and lower loan-loss provisions. ICICI Bank remains our top pick in the banking space, given its superior returns profile, top-management credibility, and strong capital/provision buffers.

Sharekhan | Buy | TP: Rs 1,200

From here on, only operating leverage can help to sustain current RoA trajectory, which could be partly offset by NIMs moderation and normalisation of credit cost. Further re-rating is likely to be very gradual, based on sustainable performance and quality earnings.

Kotak Institutional Equities | Buy | TP: Rs 1,150

There are near-term challenges: NIM is likely to come off but the pace of reduction is probably slower than what we had anticipated earlier; competitive intensity is rising; loan growth is unlikely to be a meaningful differentiator from here on; return ratios and credit costs are no longer as different as it was in the past.