icici bank: Analyst targets on ICICI Bank soar past Rs 1,000 as lender beats HDFC Bank on all parameters

NEW DELHI: Though the March quarter numbers reported by over the weekend were largely in line with analyst estimates, the outperformance over its competitors has helped them become more bullish on the counter.

Most analysts tracking the stock have now pegged their target in the vicinity of Rs 1,000 per share, with some pushing close to Rs 1,100. That means they see a potential upside of up to 45 per cent on the counter in the next 12 months.

The lender said its provision saw a sharp decline along with an improvement in asset quality. The management continues to focus on achieving growth in core operating profit in a risk-calibrated manner by focusing on target micro-market segments. It also expects the net interest margins to be stable at around 4 per cent.

SUPERIOR NUMBERS
ICICI Bank’s growth in profits and net interest income (NII) – two metrics used to determine how banks are doing — were far ahead of HDFC Bank, its largest competitor. ICICI Bank reported a 59.42 per cent year-on-year growth in net profit and a 21 per cent on-year rise in NII. In comparison, had reported a 22.8 per cent year-on-year rise in net profit and a 10.2 per cent jump in NII.

ICICI Bank also managed to marginally increase its net interest margins (NIM) to 4 per cent from 3.96 per cent a year ago. HDFC said its NIM stood at 4 per cent on total assets and 4.2 per cent based on interest-earning assets. NIM for the December quarter stood at 4.2 per cent and 4.1 per cent in the year-ago quarter.

ICICI Bank has been outperforming its peers over the past few quarters on not just financial performance but also stock market performance. The investors have already shown their willingness to shift investments from HDFC Bank to ICICI Bank. In the last one year, ICICI Bank has returned 28 per cent while HDFC Bank is down about 3 per cent.

GROWTH ENGINES
The major growth engines for ICICI Bank have been excellent loan growth, expanding credit card portfolio and improving asset quality. Greater focus on technology has also benefitted the private lender, said analysts.

“Earnings in Q4FY22 re-acknowledge our conviction that ICICI Bank is preparing for sustainable and prudent growth led by tech-driven initiatives and normalization in credit cost,” said Ajit Kumar Kabi, banking analyst at LKP Securities.

Analysts noted that the March quarter numbers displayed improved business performance, operational performance and asset quality. Advances registered a strong growth of 17.1 per cent YoY, supported by robust growth in the business banking, SME and retail portfolio of 20-43 per cent. Deposits growth continued to remain healthy at 14 per cent YoY, driven by 20 per cent YoY growth in CASA deposits. Resultantly, CASA Ratio improved to 48.7 per cent vs 46.3 per cent in FY21.

Provisions were down 63 and 47 per cent YoY and QoQ, respectively. Credit costs further declined to 0.5 per cent vs 1.6 and 1 per cent YoY and QoQ, respectively. Asset quality improvement was aided by moderation in slippages YoY with slippages at Rs 4,200 crore.

“The management’s focus on the high-yielding Retail and SME segment is likely to drive growth alongside aiding NII growth,” said Dnyanada Vaidya of Axis Securities. “The moderation in slippages and tapering of the restructured book with no major asset quality shocks insight hints at healthy asset quality going forward.”

The management said the growth in the credit card portfolio has been impressive and is largely driven by higher activation rates through the digital onboarding of customers. Credit card spends have grown at a robust rate of 77 per cent YoY in Q4FY22.

OUTLOOK
Analysts believe the company’s management is taking the bank on a path of high growth, and the journey has perhaps just begun. “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,” said Raj Jha of Edelweiss Wealth, who has a ‘buy’ call with target at Rs 945.

Axis Securities’ analysts said they continue to like the stock given the strong liability franchise and leveraging opportunities across group products. “On the back of expectations of moderating credit costs and a healthy PPOP growth, we have revised our EPS estimates upwards by 5 per cent for FY23 and kept them unchanged for FY24E. We maintain a BUY rating on the stock with a revised target price of Rs 1,000,” Axis Securities said.

Similarly, analysts at YES Securities revised target price to Rs 1,043. They value the standalone bank at 3.1x FY23 P/BV for an FY23E/24E RoE profile of 15.8/16.6 per cent and assign a value of Rs 174 per share to the subsidiaries, on SOTP.

LKP Securities has a target of 1,037. It expects its loan book to grow at CAGR of 20 per cent over FY22-24E, led by technology initiatives. It estimates return ratio ROA/ROE of 1.8 per cent and 15 per cent in FY23E.