In early morning trading on Monday, October 28, shares of ICICI Bank, the nation’s second-largest private sector bank, surged 3.1% to 1,294.55 a share. This was in response to the firm’s September quarter results, which exceeded Street predictions and caused analysts to lift their target prices.
“ICICI Bank’s Q2FY25 results stand apart from sector-wide pressures like slower deposit growth and deteriorating asset quality,” according to domestic broking firm Nuvama Institutional Equities. ICICI has developed a robust balance sheet by keeping a laser-like focus on granular, high-quality assets, which has allowed the bank to continuously produce impressive results every quarter since FY21.
“ICICI has not only outperformed peers on earnings in Q2FY25, but it has also delivered strong results (4% QoQ growth in core PPOP) in a weak environment that most banks cannot deliver even in a strong macro. We expect the stock鈥檚 premium to peers to expand, more so to high-growth peers,” said the brokerage.
The broking increased its target price from 鈧�1,450 per share to 鈧�1,470 per share, maintaining its ‘buy’ recommendation on the stock.
Similarly, citing ICICI’s impressive performance in the face of stress in the larger unsecured lending market, Prabhudas Lilladher reaffirmed its “buy” recommendation and raised its target price from 鈧�1,520 to 鈧�1,640.
In Q2FY25, ICICI’s provisions were the best-in-class at 43 basis points, while those of its private rivals ranged from 50 to 78 basis points. This suggests that the provisions for FY24鈥�27E may stay lower at 40鈥�50 basis points.
To balance the softer NIM environment, ICICI keeps core PPoP safe through efficient cost reductions. According to the broking, it continues to have the highest core RoA in its class at 2.1%.
Following its impressive quarterly performance, several other significant brokerages have also updated their target prices for ICICI Bank, keeping their recommendation at “buy.” At Investec, the target price was lifted from 鈧�1,350 to 鈧�1,450, while Jefferies boosted it from 鈧�1,460 to 鈧�1,550 per share.
Nomura changed its target price from 鈧�1,420 to 鈧�1,575 while Motilal Oswal raised its target price from 鈧�1,400 to 鈧�1,500. Macquarie reiterated his “Buy” recommendation, raising the objective from 鈧�1,300 to 鈧�1,350. IIFL increased its target price from 鈧�1,370 per share to 鈧�1,480, and upgraded its rating to ‘Buy’.
While peers saw growth slowdowns and rising credit costs, the bank released another impressive set of figures for the September quarter on Saturday, including lower QoQ slippage. Due to improved fees and Opex, its operating profit and PAT increased.
A 15.7% increase in its domestic loan portfolio was the primary driver of ICICI Bank’s core net interest income, which increased 9.5% YoY to 鈧�20,048 crore. As interest-earning asset (IEA) yields weakened to 9.20%, the net interest margin dropped to 4.27% from 4.53% a year earlier. The main driver of the 10.8% increase in non-interest income to 鈧�6,496 crore was the 13.3% increase in fee income to 鈧�5,894 crore.
From 鈧�14,314 crore in Q2FY24 to 鈧�16,043 crore in Q2, the bank’s core operating profit increased by 12.1% YoY.
In Q2 FY25, provisions were 鈧�1,233 crore, which was marginally less than 鈧�1,332 crore in Q1 FY25 but higher than 鈧�583 crore in Q2 FY24. The bank added that current provisioning only accounts for 0.4% of its entire loan book and that better recoveries in the previous year caused provisions to be lower.
After-tax profit increased 14.5% year over year to 鈧�11,746 crore from 鈧�10,261 crore in Q2 of FY24. Regarding asset quality, the net NPA ratio marginally decreased to 0.42% from 0.43%, while the gross NPA ratio improved to 1.97% as of September 30, 2024, from 2.15% at the end of the preceding quarter.
