Outweighing HDFC Bank, better return ratios: How analysts see ICICI Bank Q2

Shares of ICICI Bank may outperform those of HDFC Bank in the near-term, analysts said on Monday, after the Sandeep Bakhshi-led private sector lender reported a strong set of numbers for the July to September quarter (Q2) of financial year 2023-24 (FY24).

The result, they said, reiterated that ICICI Bank is maintaining a sustainable and prudent growth led by tech-driven initiatives as against HDFC Bank, which is facing merger related challenges.

According to analysts at Prabhudas Lilladher, ICICI Bank is valued at par with HDFC Bank at 2.2x/1.9x on FY25/26E core adjusted book value (ABV) basis. The recent correction in ICICI Bank, therefore, will likely lead to the stock's outperformance over HDFC Bank in the near-term, they said.

Over the past three months, shares of ICICI Bank have slipped 6.7 per cent on the bourses as against HDFC Bank's 10.14 per cent correction. By comparison, the S&P BSE Sensex has dipped 3.16 per cent, while the S&P BSE Bankex has shed around 7 per cent.

The Q2 show, thus, puts ICICI Bank firmly on the path to deliver healthy return ratios (return on assets/return on equity) over FY24-25 with stable asset quality and continued growth momentum.

"ICICI Bank has underperformed the Nifty Bank index by -1 per cent/+0.5 per cent/-4 per cent over the last 3/6/12 months, and hence we expect favourable growth and good execution to benefit ICICI Bank," said those at JM Financial.

During the recently concluded quarter, ICICI Bank clocked a 35.76 per cent year-on-year (YoY) growth in net profit to Rs 10,261 crore, owing to lower provisions and higher income.

The net interest income (NII) increased by 23.81 per cent YoY to Rs 18,308 crore, while the net interest margin (NIM) fell to 4.53 per cent from 4.78 per cent in Q1FY24.

Following the earnings, shares of ICICI Bank gained over 1 per cent on the BSE in Monday's intraday before closing 0.29 per cent lower at Rs 930. The benchmark Sensex index, meanwhile, closed 1.26 per cent lower.

Meanwhile, here's how other key brokerages interpret the results:

Emkay Global | Buy | Target price: Rs 1,375

ICICI Bank continues to outpace systemic credit growth at 18 per cent YoY/5 per cent QoQ and so also its largest private peer – HDFC Bank. Retail growth remained healthy at 22 per cent YoY and, thus, reducing dependence on unsecured loans for growth.

SME book also surged 29 per cent YoY, which the bank has identified as a new growth engine and margin protector.

We tweak earnings estimates for FY24-26E by 2 per cent, while we expect the bank to deliver superior higher RoA at 2.1-2.4 per cent/RoE at 17-19 pet cent over FY24-26.

Nuvama Institutional Equities | Buy | TP: Rs 1,180

ICICI Bank has among the strongest balance sheets and better-than-peer earnings profile with highly granular income and a high, undrawn standard provisioning buffer. NIM may dip for another quarter, but we see it outperforming peers.

Phillip Capital | Buy | TP: Rs 1,140

The signs of stress within the industry in unsecured products in lower ticket size is weighing the minds of investors. However, with a strong balance sheet and capital position, the bank is geared to capitalise growth opportunities in the system.

We expect continued improvement in the return on risk weighted assets for the bank. We expect earnings growth of over 15.4 per cent/13.6 per cent in FY24/25, translating into RoA of 2 per cent.

Kotak Institutional Equities | Buy | TP: Rs 1,150

ICICI Bank is seeing faster growth in other segments and is not fully dependent on unsecured loans' portfolio to drive growth. We believe concerns around asset quality in the segment are not idiosyncratic to the bank, but are general concerns of the industry. The moot point remains that ICICI Bank is probably well-positioned among peers.

The time value de-rating during the most favorable phase of the interest rate cycle has been a bit disappointing. The challenge to defend the multiple during an interest rate headwind is not going to be easy. However, we see the large banks in a much better position to deliver superior long-term growth and prefer ICICI Bank within this framework. Any re-rating, however, will likely be slow.

Motilal Oswal Financial Services | Buy| TP: Rs 1,120

ICICI Bank reported another steady quarter, driven by healthy NII and controlled provisions underpinned by robust asset quality.

We raise FY24/FY25 EPS estimates by 3 per cent/4 per cent and expect it to deliver FY25 RoA/RoE of 2.3 per cent/18.3 per cent. We introduce FY26 earnings estimates and expect PAT to grow at a moderate rate of 15-16 per cent over FY25/FY26.