 "ICICI Bank share price target: Stock should re-rate post Q1, say analysts (1)")
While core credit cost inched higher to 60 bps, operating expenses (opex) growth remained in check at 11 per cent Y-o-Y (vs 19 per cent Y-o-Y growth in FY24).
Driven by a steady show during the June quarter of the financial year 2024-25 (Q1 FY25), analysts expect ICICI Bank stock to rerate in the months ahead with up to 19 per cent returns likely over the next 12 months.
On Saturday, ICICI Bank reported a standalone net profit of Rs 11,059 crore in the June quarter, clocking a gain of 14.6 per cent year-on-year (Y-o-Y).
“ICICI Bank continues to deliver consistent performance even in seasonally weak quarters even as earnings volatility of its peers is rising.
Given the increasing quarterly earnings volatility and high loan-to-deposit ratio (LDR) of most peer banks, ICICI Bank's premium to peers should expand further and the stock should rerate,” said analysts at Nuvama Institutional Equities.
The brokerage retained its ‘buy’ rating on the stock with a target price of Rs 1,450 — up 19.4 per cent from Monday’s closing price on the BSE.
ICICI Bank, the brokerage said, turned in strong earnings and outperformed on three key concerns plaguing its peers in Q1 FY25 — asset quality, LDR and net interest margin (NIM).
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The bank’s net interest income (NII) rose by 7.3 per cent Y-o-Y to Rs 19,553 crore with NIM down 4 basis points (bps) quarter-on-quarter (Q-o-Q) at 4.36 per cent in Q1.
On asset quality, ICICI Bank reported gross non-performing asset (gross NPA) ratio of 2.15 per cent in Q1 FY25 compared to 2.16 per cent in Q4 FY24. It reported a steady net NPA ratio of 0.43 per cent.
While slippages increased 11 per cent Y-o-Y and 14 per cent Q-o-Q, these were slower than peers.
While core credit cost inched higher to 60 bps, operating expenses (opex) growth remained in check at 11 per cent Y-o-Y (vs 19 per cent Y-o-Y growth in FY24).
ALSO READ:ICICI Bank Q1 results: Net profit rises 14.6% to Rs 11,059 cr, NII up 7.3%
“ICICI Bank increased its LDR in Q1FY25 to 86 per cent from 84 per cent in Q4 but this remains among the lowest for large private banks. We lower FY25-26 earnings per share (EPS) estimate by 3 per cent but expect ICICI Bank to deliver sector-leading 2.2 per cent return on asset (RoA) and 17-18 per cent return on equity (RoE) over FY25-26,” said those at Nomura.
The Japan-based brokerage reiterated its ‘buy’ rating on ICICI Bank stock with an upwardly revised target price of Rs 1,420 (from Rs 1,335).
On the bourses, shares of ICICI Bank rose 2.8 per cent to an intraday high of Rs 1,242.45 per share before closing at Rs 1,214 per share (up 0.5 per cent) on the BSE.
By comparison, the benchmark BSE Sensex settled 23 points higher at 81,356.
ICICI Bank share hit a record high of Rs 1,257.6 on July 11, 2024, and trades at a price-to-earnings (P/E) multiple of 20.78 times.
Unsecured loans in focus
In Q1FY25, ICICI Bank's total deposits surged 15.1 per cent Y-o-Y (flat Q-o-Q). Most of the growth came from term deposits (up 19.8 per cent Y-o-Y and 3.1 per cent Q-o-Q).
On the asset side, loan growth came at 16 per cent Y-o-Y with the retail segment rising 17 per cent, business banking 36 per cent, and rural loans 17 per cent.
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Corporate loans, meanwhile, grew at a slower pace of 10 per cent.
According to analysts, within loans, ICICI Bank has grown its portfolio of unsecured loans at a faster pace with the share of these loans at around 13 per cent of total loans.
As several lenders raised concerns about the performance of this portfolio in Q1FY25, ICICI Bank's underwriting strength may be put to the test, they added.
“Nonetheless, in a scenario where the bank's credit costs are lower than peers at the end of this period, we could see it building enough confidence to put the debate on the pro-cyclicality of the franchise to rest,” said analysts at Kotak Institutional Equities.
Kotak, too, retained its ‘buy’ rating on ICICI Bank stock with a higher target price of Rs 1,400 (from Rs 1,300).
