ICICI Bank Q3 results impress brokerages; what analysts say

NEW DELHI: ICICI Bank’s over two-fold jump in December quarter profit met Street estimates. While the gross stress pool for the bank went up, analysts said it was in line with industry trends. The private lender’s return on equity (ROE) at 14.7 per cent for the quarter was in fact the best in 52 quarters, with many analysts betting on a re-rating of the stock going ahead. At 9.45 am, the scrip was trading 1.18 per cent higher at Rs 540.25 on BSE. Kotak Institutional Equities values the stock at Rs 615 from Rs 575 earlier. The brokerage noted that ICICI Bank used to hit RoE of 14 per cent in FY2014-16.“That time, there were risks that stress from infrastructure was still not fully reflected in earnings. This time, the RoEs have much stronger support as the bulk of the stress is reported and well provided. The surprises, if any, are negligible on the negative side. In short, we see ICICI Bank’s RoE well-positioned for 15 per cent plus growth in the medium term,” it said.The bank on Saturday posted 158.32 per cent year-on-year rise in standalone profit at Rs 4,146 crore for the quarter ended December 31. The profit figure stood at Rs 1,605 crore for the same period last year.Motilal Oswal Securities expects the bank’s operating performance to remain healthy, while high provision coverage ratio (PCR) and limited exposure to stressed names will keep credit cost under control.“While its retail portfolio has been growing well, growth in business banking and SME is accelerating strongly and will further propel overall loan growth,” Motilal said while suggesting a target of Rs 650 for the stock. JP Morgan has retained its overweight stance on the stock with a target of Rs 650. Slippage and BB book increase proved to be asset quality headwinds, it said. For the quarter, fund-based and non-fund based outstandings to borrowers rated BB and below (excluding NPAs) stood at Rs 17,403 crore, compared with Rs 16,074 crore in September quarter. It was Rs 17,525 crore as of March 31. The bank, meanwhile, set aside Rs 2,083.20 crore towards provisions and contingencies, which was 51 per cent lower than Rs 4,244 crore provided for the year-ago quarter. According to AceEquity, these were the lowest provisions the bank has made since the September quarter of 2015, when the figure stood at Rs 942.20 crore.“Gross slippages were higher at Rs 4,360 crore, but it includes lumpy Karvy exposure (100 per cent provided) and a South-based industrial corporate. Retail slippages too were elevated mainly due to the continued stress in CV and seasonal NPAs in KCC,” said Emkay Global.Emkay said that while the gross stress pool rose, it included the bank’s exposure to Vodafone.“ICICI Bank should be able to deliver strong RoEs (15-16 per cent over FY21/FY22E) from sub-10 per cent, driven by better NIMs/lower opex and credit cost. This, coupled with its re-emergence as a strong retail-cum-digital bank, should call for a re-rating,” it said.Gross NPA for the quarter at 5.95 per cent was the lowest since June quarter of 2016, when it had come in at 5.3 per cent. Gross NPAs stood at 6.37 per cent in September quarter and 7.75 per cent in the December quarter of 2017.

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