Record Profits Boost Bullish Views on India’s ICICI Bank

(Bloomberg) -- Analysts remained overwhelmingly positive on ICICI Bank Ltd. after India’s second-largest private lender posted a record quarterly profit, helped by lower provisions for future bad loans. Its shares climbed as much as 6.6%, the most since June 3.

Net income at the bank rose to 42.51 billion rupees ($574 million) in quarter ended Sept. 30 from 6.55 billion rupees a year earlier. The results was about 48% higher than the average analyst estimate. Net interest income rose 16% from a year ago, and the bank didn’t make any additional provisioning for pandemic-induced bad loans after front-loading a large amount in the June quarter. Soured loans dipped from the level in June and President Sandeep Batra said he expected a “more normalized” financial year starting in April.

ICICI Bank has 54 buy recommendations, with no holds or sells. Here’s what analysts had to say about the the results.

Bloomberg Intelligence (Diksha Gera)

• The bank is better positioned than smaller and most public-sector lenders in India to defend earnings in fiscal 2021.
• Its net interest margin may be supported by its strong deposit franchise, but credit demand revival is key.
• ICICI’s loan growth may beat peers as it takes market share from public banks and shadow lenders; bad-loan formation amid lockdown warrants a closer watch.

Motilal Oswal (Nitin Aggarwal)

• The bank’s control over operating expenditures and lower provisioning helped drive earnings growth.
• Business trends are improving, with loan disbursement reaching pre-Covid levels and even higher in some segments.
• The deposit base continues to improve, with cost of deposits declining to 4.2%, while the lower credit-deposit ratio provides strong opportunity for growth.
• Expects annual return on assets to reach 1.4%, return on equity 12.8% in FY22
• Maintains buy, with a price target of 525 rupees

Prabhudas Lilladher (Pritesh Bumb)

• Collections efficiency for overdue loans is improving to near pre-Covid levels; overdue loans are still 3%-4% higher than pre-pandemic levels and should improve going forward.
• The bank sees a low level of loan restructuring.
• The lender has a strong franchise, high capital level and is fully covered on legacy bad loans, with provisions related to Covid lower than anticipated.
• Retains buy, raises price target to 520 rupees from 462 rupees

Dolat Capital Market (Mona Khetan)

• Sequential improvement in fee growth, decline in provisions and a lower tax rate resulted in RoA of 1.5% for the quarter.
• While stress in loans to companies still needs to be watched, the bank’s prudent provisioning, strong capital position, healthy deposit base, digital capabilities and market-leading subsidiaries provide confidence.
• Maintains buy, with a price target of 510 rupees

JM Financial (Sameer Bhise)

• Loan collections are rapidly normalizing, with repayments overdue from individuals and small and mid-sized companies only marginally higher than pre-Covid levels.
• Sees bank reverting to near-normal credit costs in FY22.
• Bank’s growth opportunities are in select retail segments like mortgage, rural and auto.
• Core banking business still trades at inexpensive valuations despite a surge from March lows.
• Maintains buy, with a price target of 475 rupees

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