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ICICI Bank reports strong Q2 earnings: What should investors do?

Brokerages also raised target price on the stock despite profitability hit by deferred tax assets (DTA) adjustment

October 28, 2019 / 08:51 AM IST
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Brokerage houses remained bullish on ICICI Bank, the country's largest private sector lender, after reporting healthy growth across parameters barring slight miss on credit growth and marginal uptick in stress pool.

Brokerages also raised target price on the stock despite profitability hit by deferred tax assets (DTA) adjustment.

"ICICI remains our top buy (revised target price of Rs 580, implying 24 percent potential upside from current levels)/overweight in Emkay Alpha Portfolio (EAP) given its focus on profitability versus growth, strengthening liability/retail platform, risk-based pricing approach, de-bulking balance sheet and making it more resilient to shocks by improving PCR," said Emkay.

ICICI reported strong results with steady net interest margin (3.64 percent), better fees/dividend, leading to a strong 31 percent pre-provision operating profit (PPoP) growth YoY. However, its prudent strategy to shore up PCR to all-time high of 76 percent and DTA impact (Rs 2,900 crore) due to new tax regime led to lower PAT of Rs 660 crore.

BB & Below stress pool inched up to Rs 16,700 crore, 2.6 percent of loans (including investments of Rs 700 crore), with gross additions at Rs 2,070 crore/net at Rs 720 crore. The stress pool may see additions given the state of economy but resolutions are in work to ensure that migration to NPA is limited, Emkay said.


Prabhudas Lilladher also retained strong conviction buy with revised target price of Rs 541, implying 15.3 percent potential upside from current levels, (from Rs 518) based on 2.1x Sep-21 ABV and higher insurance value derived from rollover.

Bank enhanced its PCR further by 200bps QoQ to 76 percent (85 percent including technical written off) and is best in the industry, while lower slippages helped asset quality improvement. BB & Below is steady at 2.6 percent of loans.

Improving NIMs, strong PCR with lowering asset quality risks and control on operating expenses keeps the bank on path of strong recovery in earnings leading to 16-17 percent return on equity for standalone entity by FY22, Prabhudas Lilladher said.

ICICI Bank's profit after tax (PAT) dipped to Rs 654.96 crore in Q2FY20, against Rs 908.88 crore in the same period last year, but supported by strong PPoP and other income, and lower provisions.

"Excluding impact of one-time additional charge due to remeasurement of accumulated deferred tax, PAT would have been Rs 3,575 crore in Q2FY20, a growth of nearly four-fold compared to Rs 909 crore in Q2FY19," the bank said.

Net interest income (NII) during the quarter grew by 26 percent to Rs 8,057.43 crore with 13 percent credit growth YoY.

Domestic loan growth stood at 16 percent as the bank continued to leverage its strong retail franchise, resulting in a 22 percent YoY growth in the retail loan portfolio (which was 49.9 percent of the total portfolio) at September 2019, ICICI said.

Excluding non-performing and restructured loans, the growth in domestic corporate loans was about 7 percent YoY, it added.

Deposits growth was very strong at 25 percent YoY with average CASA deposits increasing by 11 percent YoY in Q2FY20 and term deposits rising 35 percent.

Net interest margin for the quarter came in at 3.64 percent, improving 3bps sequentially and 31bps YoY, the bank said.

Asset quality of the bank improved as per street expectations with gross non-performing assets (NPA) as a percentage of gross advances falling 12bps sequentially to 6.37 percent in Q2FY20. Net NPAs as a percentage of net advances dropped QoQ 17bps to 1.6 percent during the quarter.

Gross slippages (or fresh addition of accounts in NPA list) dropped to Rs 2,482 crore for the quarter ended September 2019, down 11 percent sequentially and 20 percent YoY.

"Recoveries and upgrades of non-performing loans were Rs 1,263 crore in Q2FY20, which increased compared to Rs 931 crore in Q1FY20," the bank said.

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Sunil Shankar Matkar
first published: Oct 28, 2019 08:51 am
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