Is ICICI Bank the new trendsetter for banking stocks after a “spectacular” quarter?

Private lender ICICI Bank is only a few rupees away from breaking its one-year high on the stock market. During Muhurat trading, ICICI Bank saw strong buying on its eye-catching set of numbers in the second quarter of FY23. The bank was among the top bulls in the banking basket on Monday. In Q2Y23, the bank beat estimates with double-digit growth in profitability and interest income, while margins remained healthier and asset quality improved further. Analysts have set a “buy” rating on the bank with a target price ranging from 1,000 to 1,135 each.

When negotiating in the markets were allowed from 6:15 p.m. to 7:15 p.m. Monday, investors were quick to add ICICI Bank shares to their portfolios. The stock rose nearly 3% in just one hour. It hit an intraday high of 932.90 each, which was just a few rupees off the 52-week high of 936.35 each.

The stock closed around 925.90 each per 18.75 or 2.07% on BSE. Its market capitalization is greater than 6.45 lakh crore.

ICICI Bank remained among the top five performers in the Sensex and the Nifty 50, despite being the top performer in the banking sector.

The reason behind the stellar purchases is believed to be a dramatic set of numbers the bank released in the second quarter of FY23.

During the July to September quarter of 2022, ICICI Bank recorded a net profit of 7,558 crores in Q2FY23 up 37% from 5,511 crores in the same quarter last year. Net interest income (NII) jumped 26% year-on-year to reach 14,787 crores in Q2FY23 vs. 11,690 crores in the second quarter of FY22. Additionally, the net interest margin was 4.31% in the quarter.

Additionally, the bank’s asset quality improved, with gross NPA standing at 3.19% in Q2FY23 compared to 3.41% in Q1FY23 and 4.82% in Q2FY22. The net NPA ratio improved to 0.61% in Q2FY23 from 0.70% in Q1FY23 and 0.99% in Q2FY22.

As of September 30, 2022, the bank’s deposits jumped 12% year-on-year to reach 1,090,008 crore, while advances increased by 23% year-on-year to 938,563 crores.

Should you buy ICICI Bank shares?

In a report, Manish Agarwalla and Sujal Kumar, research analysts at Phillip Capital, said, “ICICI Bank reports another strong and stable financial performance, positively surprising NIM. Improving profitability at the unit level thanks to the increase in the margin; better credit behavior has resulted in market share gain for the bank.We believe ICICIBC is best positioned among peer banks given its strong digital capabilities to underwrite loans at an accelerated pace.With a strong balance sheet and capital position, the bank is poised to take advantage of growth opportunities in the system.”

The duo’s note added, “We expect the bank’s return on risk-weighted assets to continue to improve, and it is expected to be the highest in the industry by FY23. We expect earnings growth of +24%/20% in FY23/24 resulting in a RoA of 2%/2.1% At CMP, ICICIBC trades at 2.9x/2.4x FY23e/24e core ABVPS of 265/307 (valuation of subsidiaries at 175). We are maintaining Buy with a revised TP of 1080 (Rs1070 earlier).”

Meanwhile, in a report, Raj Jha Research Analyst at Edelweiss Financial Services said: “ICICI Bank (ICICI) reported a spectacular set of numbers, with NIM for the quarter the highest in at least a decade and RoA for the quarter being the second strongest since at least 2007. Year-on-year credit growth is also the strongest in at least 12 years.Asset quality also continued to improve, with QoQ moderating reported slippages by the bank.

Jha added, “We expect the bank to see consistent growth in teenage credit and project RoA and RoE of 2% and 16%, respectively, in FY24E. bank shares will continue to be repriced and maintain our buy recommendation with a revised TP of 1,135/share.”

Additionally, analyst Ajit Kumar Kabi of LKP Securities said in a report, “We expect its loan portfolio to grow at a CAGR of 20% in FY22-24E, driven by technology initiatives. normalization of the cost of credit is in progress. We estimate a return ratio ROA /ROE of 1.8% and 15% in FY23E. We value the autonomous entity with 3xFY24E BVPS ( 320) and investment in subsidiaries and JVs ( 138 per share); we arrive at a target price of 1,097. We recommend BUY with 21% upside potential.”

So far in the current year, shares of ICICI Bank have jumped more than 21% on Dalal Street.

Disclaimer: The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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