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Here is why analysts think ICICI Bank is the new growth leader post Q4 nos

ICICI Bank
Market participants hailed the March quarter (Q4FY21) results of private lender ICICI Bank as negligible debt restructuring, healthy operational performance, and stable growth outlook kept investor confidence intact. At the bourses, the stock of the lender zoomed 6 per cent in the intra-day deals to a high of Rs 605 on the National Stock Exchange. The stock eventually closed 3.6 per cent higher at Rs 591 as against a 1 per cent rise in the benchmark S&P BSE Sensex. 

The lender on Saturday reported a net profit of Rs 4,403 crore in the March quarter of FY21, up 260 per cent year-on-year (YoY) from Rs 1,221 crore reported in the same period last year. Its operating profit, meanwhile, grew around 16 per cent YoY driven by an 17 per cent YoY increase in net interest income (NII) at 10,431 crore. The same was Rs 8,927 crore in Q4FY20. Further, the net interest margin (NIM) was 3.84 per cent in Q4FY21 as compared to 3.67 per cent in Q3FY21 and 3.87 per cent in Q4FY20. 

Market mavens have now revised their target price on the scrip on the upside to factor-in stable asset quality and steady growth momentum. Global brokerage CLSA, for instance, has increased its 1-year target on the stock to Rs 825 from Rs 800 as it expects the bank to be the new growth leader among large banks.

"We further increase our earnings by 4 per cent-6 per cent factoring-in better growth and NII. With an end to the past 5-6-year intense corporate credit cycle, its improving granularity of earnings and potentially ICICI Bank being the new growth leader among large banks, we expect its re-rating cycle to continue," it said in its result review report.

Domestic brokerage Kotak Institutional Equities is of the view that the bank is well-positioned to deliver a closer-to-normalcy trend in overall ratios for FY2021-23. "Not only is the bank showing strong evidence that it is likely to come out of the Covid crisis faster than others, but return ratios are also likely to be closer to the best-in-class players in the industry. Valuations have room for further expansion," it said. 

Here's what making the analysts bullish on the counter:

Asset quality: ICICI Bank made provisions to the tune of Rs 2,883 crore as compared to Rs 5,967 crore in the same period last year. Furthermore, the lender provided Rs 1,000 crore as additional Covid-19 provisions. Overall, at the end of March 2021, the bank held Covid-19 related provision of Rs 7,475 crore. That apart, in Q4FY21, it also utilised contingency provision amounting to Rs 3,509 crore towards proforma NPAs as of December 31, 2020, as these loans have now been classified as per the RBI guidelines.

Nomura observes that the bank's restructuring was 27bp of loans, with one-third in retail. Also, the bank disbursed Rs 12,700 crore under ECLGS 1.0 and Rs 1,500 crore under ECLGS 2.0. Retail overdues have likely improved vs 1.5 per cent higher than pre-Covid levels in December, 2020. SME and business banking continue to have overdues at pre-Covid levels while the corporate portfolio has less than 2 per cent in overdues. Given this, they expect credit costs to taper to 1.2 per cent in FY22-24F.

Fewer slippages: ICICI Bank's slippage at Rs 5,500 crore (0.75 per cent of loans) was a positive surprise, says CLSA. Segmental disclosure indicated corporate net slippage was negligible, leading to corporate profit before tax normalising to +1.8 per cent of assets after 4-5 years of losses. Retail slippage increased by less than 2x to 2.4 per cent in FY21 vs 1.4 per cent in FY20 which, the brokerage believes, is manageable given the pandemic. 

"We would like to highlight retail slippage for FY21 includes slippage in mortgages (low losses given defaults) and hence the reported coverage of ICICI Bank at 78 per cent is conservative. The bank is carrying over Rs 8,000 crore of non-NPA provisioning which provides a buffer against a second wave of Covid-19 and its ECLGS portfolio," it added.

Loan book: Analysts at Jefferies remain positive on the bank's healthy growth of 24 per cent in average CASA balances (CASA ratio at 46 per cent) and retail loan growth of 20 per cent YoY. The management highlighted that retail growth was driven by investment in distribution as well as cross-sell initiatives (both among retail and corporate clients). Overall loans grew at 14 per cent of which domestic corporate loans rose by 10 per cent.

"Among other retail segment business loans grew 40 per cent YoY and rural loans (comprises ~50 per cent Jewel loans) was up 27 per cent YoY. Auto loans and personal loans had picked up QoQ but book stayed flat in CV, two-wheeler and credit card segment. Domestic corporate loans grew 10 per cent YoY (4 per cent QoQ). Moreover, overseas loans declined 13 per cent QoQ and 30 per cent YoY and now forms just 5 per cent of overall loans. Hence overall loan growth would gradually converge with domestic loan trend which looks strong," noted those at Antique Stock Broking.

Brokerage Revised Target Price (in Rs) % upside
CLSA 825 45
Nomura 690 21
Jefferies 780 37
Motilal Oswal Financial Services 750 32
Kotak Institutional Equities 710 24.5
Antique Stock Broking 705 24
Ambit 760 33.3
HDFC Securities 649 14
Axis Securities 720 26.3



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