ICICI Bank's all-round strong performance in Q3FY22 (December quarter of FY22) beat market expectation across all fronts. The lender posted lifetime high net profit of Rs 6,194 crore and return of assets (ROAs) of 1.9 per cent.
The bank also exhibited an all-round performance with healthy loan growth of 16 per cent YoY (over 6 per cent QoQ), high net interest margin (NIMs) of 4 per cent, improvement in fee income, near nil net slippages, and decline in net non-performing assets ratio to 0.85 per cent. READ ABOUT IT HERE
Given this, analysts have upped their one-year target price for the lender due to its consistent delivery over the last few years, which, they say, reflects an 'impressive turnaround'.
"ICICI Bank has been narrowing the discount with sector leaders of the last decade. The first leg of the target of crossing 15 per cent return on equity (RoE) has been accomplished in this quarter and the next leg will aim to sustain and improve on this RoE further," said analysts at Motilal Oswal Financial Services.
However, despite the re-rating, the stock is still trading at 1.9x FY24E adjusted book value (ABV) and has ample room to re-rate further. This will enable further reduction in valuation discount with sector leaders and support the bank in claiming the top spot in terms of market valuations, they added.
ICICI Bank's m-cap was Rs 5.63 trillion at 10:50 AM on the BSE on Monday, while sector leader HDFC Bank’s m-cap stood at Rs 8.33 trillion.
For those at Emkay Global, corporate credit acceleration will now be the key trigger to boost growth as ICICI’s Bank has been outperforming its peers in terms of credit growth in the retail and SME segment.
This, coupled with strong traction in fees and increasing digitization of business leading to better operational efficiency, should drive up core operating profitability at 22 per cent CAGR over FY22-24, Emkay said.
"Asset quality continues to improve at a faster-than-expected pace, while the reversal of the Covid provision buffer could lead to decadal-high RoEs of 15-17 per cent over FY22-24. Any potential one-off gains from the ICICI Lombard stake sale to meet regulatory guidelines could further prop up RoEs. We retain Buy on ICICI with a revised target price of Rs 1,025 (2.9x Dec'23E ABV + subs value of Rs200) compared with Rs 950 earlier (2.7x Dec’23E core bank ABV + subs valuation of Rs 195)," it said.
Edelweiss Securities, too, says a focused approach and structural changes underpin the bank's sustainable re-rating.
That said, analysts at Kotak Institutional Equities believe ICICI Bank’s next leg of re-rating will be gradual.
"We have seen the bank's valuation expand sharply post the initial Covid lockdown. We see further room for expansion even as we are cognizant that the bank is trading close to its peak valuation. However, this is likely to be gradual and driven by consistent execution rather than any positive surprise on operating metrics hereon," they cautioned.
Besides, downside risks to the bank remains its aggressive push to retail lending, the maintenance of which may turn out to be a challenge. Further, deterioration of macro environment can result in higher restructuring and slow down business growth, analysts say.
Source: Brokerage Reports
Note: Price in Rs; Upside in %
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