ICICI Bank Q1 PAT may jump 60% YoY on stake sale in insurance arms: Experts

Firming up its position as one of the strongest private players in the banking sector, ICICI Bank may clock up to 60 per cent year-on-year (YoY) growth in net profit at Rs 3,108 crore in the April-June quarter of FY21 (Q1FY21) supported by stake sale gains from ICICI Prudential Life Insurance and ICICI Lombard, say analysts. The bank is scheduled to announce its Q1FY21 numbers on Saturday, July 25.

However, weak credit growth amid disrupted business activity – courtesy Covid-19 induced lockdown - and cut in marginal cost of funds-based lending rate (MCLR) may put mild pressure on interest margins, they say.

Analysts at Sharekhan expect the lender to clock a net profit of Rs 3,108 crore, registering a growth of 63 per cent YoY, from a profit of Rs 1,908 crore reported in Q1FY20. On a quarterly basis, this would be a jump of 154.6 per cent.

Darpin Shah, analyst tracking the sector at HDFC Securities, meanwhile, pegs the net profit marginally lower at Rs 2,900 crore, up 52 per cent YoY.

“We have factored in higher provisions (up 71 per cent YoY, albeit lower QoQ), as ICICI Bank proactively utilises the gains from stake sale in subsidiaries. Consequently, we expect the PAT to register a sharp 52 per cent YoY growth,” he wrote in a results preview note.

A more optimistic estimate by analysts at Nirmal Bang Institutional Equities pegs the profit at Rs 4,016.4 crore, up a whopping 110.5 per cent YoY and 228.8 per cent QoQ.

On the lower end, analysts at Phillip Capital expect the net profit to grow just 15 per cent YoY and 79 per cent QoQ to Rs 2,189 crore.

“We expect the bank to create contingent provision of around Rs 1,800 crore for the quarter under review. However, the bank sold 1.5 per cent stake in ICICI Pru Life Insurance for Rs 840 crore and booked gain on the transaction, which might lend support,” they said in an earnings expectations report. Besides ICICI Pru, the private lender also sold 3.96 per cent stake in its general insurance arm ICICI Lombard for Rs 2,250 crore in June.

Loan book and Interest income

Analysts, on average, expect the bank’s credit growth to remain restricted to single digit. Shah of HDFC Securities, for instance, sees the growth at around 9 per cent year-on-year driven by the corporate segment.

Edelweiss Securities, too, believes that loan off-take could be soft for the quarter. Deposit growth, however, may show strong traction.

Given the weakness, net interest income (NII) – the difference between interests earned and expended – is seen growing 15-16 per cent YoY to Rs 9,011.2 crore from Rs 7,737 crore earned in Q1FY20. In the March quarter of FY20, the income was at Rs 8,927 crore.

The net interest margin (NIM) is seen coming in at 3.78 per cent, down from 3.87 per cent seen in Q4FY20. In Q1FY20, the same was 3.6 per cent.

Asset quality and key monitorables

Given the moratorium extended by the Reserve Bank of India (RBI), the asset quality of the bank may remain stable and higher slippages on a sequential basis.

Analysts at Phillip Capital estimate the slippages at Rs 3,800 crore, posting a contraction of 28.4 per cent QoQ, from Rs 5,306 crore in Q4FY20. On a yearly basis, they may surge 36.7 per cent from Rs 2,779 crore reported in Q1FY20.

“The key monitorable will be downgrades to ‘BBB’ and below rated assets. Credit cost, on the other hand, could be higher if the bank chooses to build up provisioning due to the current scenario,” noted Edelweiss Securities.

The gross NPA ratio may remain stable sequentially at 5.5 per cent, and may improve on a YoY from 6.5 per cent.  The net NPA, meanwhile, is seen at 1.4 per cent.

That apart, incremental provisioning towards Covid-19, improvement of provision coverage ratio, movement in ‘BB and below’-rated book, outlook on asset quality, details on the moratorium, subsidiaries’ performance, and comments on proposed fund-raise would be keenly tracked. 

During the quarter under review, the bank's stock has underperformed at the bourses. For the three month period, the stock price of ICICI Bank advanced 8.3 per cent, as against a 18.4 per cent rise in the S&P BSE Sensex, ACE Equity data shows. In comparison, the S&P BSE Bankex index jumped 10 per cent during the period.