Raising the bar: ICICI Bank reports an overall improvement; MOSL sees 40% upside

Private sector lender ICICI Bank rose 2 percent on Monday in an otherwise weak market after the bank posted steller earnings for the March quarter (Q4FY22). Its net profit jumped 59.4 percent year-on-year (YoY) at ₹7,018.7 crore. In the corresponding quarter last year, the company posted a net profit of ₹4,403 crore.

The net interest income (NII) increased by 21 percent YoY to ₹12,605 crore in Q4-2022 from ₹10,431 crore in Q4-2021. The net interest margin (NIM) was 4.00 percent in Q4-2022 compared to 3.84 percent in Q4-2021.

Provisions (excluding provision for tax) declined by 63 percent YoY to ₹1,069 crore in Q4-2022 from ₹2,883 crore in Q4-2021. The net non-performing assets declined by 24 percent year-on-year to ₹6,961 crore on March 31, 2022.

The stock rose as much as 1.9 percent to its day's high of ₹761.50.

Brokerages were also bullish on the lender post the robust earnings report. Motilal Oswal retained a 'buy' call on the stock with a target of ₹1,050 per share, indicating a 40 percent upside for the stock. Edelweiss also has a 'buy' call on the lender with a target of ₹945 per share, implying a 26 percent upside for the stock.

Motilal Oswal noted that the bank reported an all-around improvement in operating performance, core pre-provision operating profit, margin improvement, and robust asset quality driving a sharp decline in credit cost, even as the bank increased its contingent provision buffer by ₹1,025 crore.

"While the stock has done well on a relative basis, current valuations leave ample scope for a re-rating. The stock is well-positioned to undergo a swift re-rating over FY23, generating strong returns for the investors, as ICICI Bank continues with its journey to deliver solid return ratios and growth," said MOSL.

It expects the bank to deliver a return on equity (RoE) of 16.3 percent in FY24. ICICI Bank remains its top pick in the sector.

Meanwhile, Edelweiss expects return ratios of the lender to remain strong given the bank’s digital push, which will keep opex in check; high PCR, which will provide comfort on the credit cost front; and consistent mid-to-high teens credit growth.

"Growth leadership, strong digital push, and focus on risk-calibrated operating returns and best-in-class provision coverage should lead to a re-rating for the bank," it added.

Brokerage house Emkay Research said ICICI has outperformed peers on core profitability, driven by its focus on profitable growth.

“We see further room for margin improvement given continued focus on high-margin retail, SME and business banking (BB) portfolio, along with higher share of floating rate book at 70 percent (41 percent is repo linked and 22 percent linked to MCLR or marginal cost of funds based lending rate) in a rising interest-rate scenario,” said a report from Emkay Research.

Prabhudas Lilladher also noted that the bank has consistently outperformed over the past few quarters with earnings quality improving each quarter. Brokerage firm Prabhudas Lilladher envisages an RoE of 15.6 percent in FY24 as compared to 16.8 percent for HDFC Bank. “Valuation at 2.2x FY24 core ABV is attractive and assigning a 3.0x multiple we revise SOTP based target price to ₹950 from ₹906 per share,” Prabhudas Lilladher said. The brokerage reiterates a ‘buy' on the stock.

Post the earnings, the management said that the bank will continue to leverage its technological capabilities to drive growth, which will help it gain market share across all business segments.

They added that the bank saw a significant increase in the value and volume of financial transactions on InstaBIZ for SME and Business Banking.

45 analysts polled by MintGenie also has a 'strong buy' call on the lender.