After ICICI Bank results beat estimates, Jefferies says buy, target price Rs 480; know what other brokerages did

Jefferies retains buy rating on ICICI Bank and maintains a target of Rs 480. ICICI Bank Q2 FY21 profit at Rs 43 bn (low base YoY) was well ahead of forecast led by lower credit cost as the bank did not make Covid-related provisions. The Level of collection & management commentary were reassuring that buffer provisions (1.5% of loans) will be adequate. This helped to improve ROA to 1.5% and thus FY22-23 profitability should be close to normalcy. Jefferies believes pick-up in CASA growth (12%) should aid faster loan growth.

Top line in line, pick-up in CASA growth could lift market share gains.

The bank's NII growth of 16% YoY was in line with expectations led by 6% growth in assets and some compression in NIMs. The rebound in fees (down just 10% YoY) was encouraging. Pick-up in retail disbursements (housing was the highest ever disbursement and autos were near pre-Covid) should aid pick-up in loan growth. Casa deposits grew by 12% YoY (average growth was better at 17%) and a pick-up here could further lift loan growth for the bank. During 2Q, consolidated profit was 20% higher than standalone with high growth coming from a low base.

Discontinued Covid-related provisions indicate stress is well covered.

The key positive in the results was that the bank did not set aside provisions for additional Covid-related stress; provisions were made for NPL only (recognised or on standstill). The level of loan collection and management's outlook on asset quality also indicate that the bank is well covered with the current level of provisions (1.5% of loans). Management clarified that in most retail segments, the level of collection has reached 97% of pre-Covid levels and corporate overdues are just 3% of loans. Hence, the level of restructuring should be relatively small. During Q1, gross slippages were higher at 3% of past year loans led by higher downgrades in retail loans, but this was offset by recovery / upgrades in corporate loans where net slippages were nil. Including the standstill NPLs, gross NPL ratio is at 5.4% with coverage of 80%. As a result of normalisation of credit cost, ROA reached 1.5% in 2Q, and this drives the upgrade to our earnings estimates.

Antique Maintains Buy Rating on ICICI Bank with target price of Rs 500 .Antique believes ICICI Bank Q2 FY21 PAT of Rs 42.5 bn (6.5x YoY, 20% above estimate) was driven by 20% YoY growth in core PPP (8% above estimates) and lower tax rate of 19%. QoQ growth in retail (+6% QoQ) across products was positive. Slippages adjusted for Supreme Court order was INR44.3bn (2.9% of annualized slippage ratio) but upgrades and recoveries kept GNPLs contained (5.4% vs. 5.5% in 1QFY21). BB and below corporate loans declined QoQ to 2.5% of loans. While stress would rise, high NPL coverage ratio of 82%, retail collection efficiency at 97% of pre-COVID levels, expected corporate restructuring of <1% of overall loans, high contingency provisions of 1.6% of loans, provides management confidence that credit cost should normalize in FY22. Prudent lending aided by strong liability franchises could be the differentiator for ICICIBC and we expect ROAs of 1.2-1.5% over FY21-23e.
Sharekhan maintains buy rating with a price target of Rs 525. Sharekhan says ICICI Bank posted strong results for Q2 FY21, with operating performance better than expectations, improvement in collections efficiency (MoM) and QoQ improved asset quality. Improving collection efficiency, with strong traction in core fee income (up by 49% QoQ); retail portfolio up by 12.8% YoY and 6.2% QoQ, indicates improving business activity. Healthy pick up in ROE at 13.2% (from 8.9% in Q1 FY21) with higher CRAR at 18.5% (up 250 bps from Q1 FY21) make a strong quarter.

Key positives:

De-risking of advances book continues with A- and above book at 71.6%. Strong core fee income traction, which was up by 49% QoQ, reflecting improving business volumes and customer activity; Retail portfolio grew by 12.8% YoY and 6.2% QoQ. Healthy pick up in ROE at 13.2% (8.9% in Q1 FY21) even with higher CRAR at 18.5% (up from 16% in Q1 FY21)

Key negatives:

NIM was 3.57% (3.69% in Q1 FY21; down 12 bps QoQ) due to higher liquidity and relatively strong deposit inflows compared to credit demand. Š Slippages elevated at Rs. 3,017 cr, up 160.1% q-o-q, with non-watchlist slippage coming at Rs. 1,805 cr, up 82.5% QoQ.

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Sharekhan believes, post moratorium, the level of overdues in the portfolio is substantially lower and collections traction is also improving, which is a positive sign. Asset quality improved, with not only the reported GNPA / NNPA coming down sequentially, but even proforma GNPA / NNPA came at 5.36% / 1.12% and were better sequentially as they declined by 10 bps /11 bps QoQ. The bank provided Rs 500 cr for potential slippages of Rs. 1,400 cr and indicated that BB and below book (which is at 2.6% of loans) should primarily be the key source of future NPL / restructuring, which indicates better asset quality grip for the bank. Management indicated that Rs 2100 cr of book has asked for restructuring and expected higher but contained slippages in H2, cushioned by robust provision buffers (2.3% of loans).
Net interest margin (NIM) was at 3.57% (down 11 bps QoQ) mainly due to high deposit growth and liquidity and international NIM are at six quarter low. The bank is adequately capitalised (Tier-1 at 17%), which adds to the balance sheet strength. Sharekhan likes the prudent and cautious approach of the bank in building provision buffers, cautious loan book growth, and healthy capitalisation levels, which they believe will be key for overcoming medium-term challenges.