Over the last two quarters, most banks have reported improved performance as a result of the acceleration in credit growth. Despite ongoing rate hikes from the Reserve Bank of India, which has lifted interest rates by 190 basis points so far in 2022, the credit growth of commercial banks has remained strong as it grew by 16.28% in the fortnight that ended on September 23, thanks in part to increases in personal loans, mortgage loans, and corporate loans.
Commercial bank margins have recently improved as they quickly raised lending rates in line with RBI rate hikes but went slowly on deposit rates, resulting in a rise in margin spreads as interest income from loans and investments rises faster than interest expense paid to depositors.
Brokerages had anticipated that banks would report solid numbers for the September quarter, while ICICI Bank exceeded analysts' expectations with its strong performance. On October 22, the country's second-largest private-sector lender posted a 37% YoY jump in its standalone net profit to ₹7,557 crore in Q2 as against ₹5,511 crore during the same quarter of the previous fiscal. Following the development, the stock reached a new all-time high of ₹943.
The bank's core net interest income grew by 26 per cent to ₹14,707 crore in the September-ending quarter, helped by a 23 per cent loan growth and a 0.30 per cent expansion in the net interest margin to 4.31 per cent.
However, the bank's deposit growth stands at 12% was trailing the loan growth by a wide margin. The non-interest income, excluding treasury income, increased 17 per cent to ₹5,139 crore, while there was a treasury loss of ₹85 crore in the reporting quarter as against gains of ₹397 crore in the year-ago period, PTI reported.
Meanwhile, the bank provisions improved to ₹1,644.52 crore as against ₹2,713.48 crore in the year-ago period but were up when compared with the ₹1,143.82 crore in the June quarter.
The bank's asset quality improved as it net non-performing assets declined to 0.61% in the September quarter from 0.70% in Q1FY23 and 0.99% in Q2FY23. In the September quarter, the gross NPA ratio declined to 3.19% from 4.82% in Q2FY22 and 3.41% as of June 30, 2022.
In addition to that, the bank reported capital adequacy at 18.27% in the September quarter and Tier-1 capital adequacy at 17.51%.
Following a strong Q1 performance, a number of domestic brokerages have increased their target prices on the stock. Edelweiss has maintained a 'buy' call on the stock with a target price of ₹1,135, implying a 22.70 percent potential upside from the stock's previous closing price.
The brokerage expects the bank to report consistent mid-to-high teens credit growth and it projects RoA and RoE of 2% and 16%, respectively, in FY24E. "We believe the bank can continue to deliver on loan growth and NIM expansion even on a high base. With eight consecutive quarters of best-in-class earnings and NIM expansion likely to sustain, "the brokerage said.
HDFC Securities also maintained a 'buy' call on the stock with a target price of ₹1,105/share. In addition to that, Prabhudas Lilladhar maintained a 'buy' recommendation on the stock with a target price of ₹1,090/share.
On the other hand, LKP Securities has given a 'buy' rating on the stock with a target price of ₹1,097. The brokerage expects its loan book to grow at a CAGR of 20% over FY22–24E, led by technology initiatives. Credit cost normalisation is underway. It estimates a return ratio of ROA/ROE of 1.8% and 15% in FY23E.
An average of 43 analysts polled by MintGenie have a strong' buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
