ICICI Bank Clocks Biggest Gain In Three Years As Bad Loans Stress Seen Easing

Shares of ICICI Bank Ltd. jumped as much as 8.7 percent, the most since September 2013, after most brokerages maintained their rating on the stock despite worsening asset quality indicators during the January-March period.

The country's largest private lender saw its profit rise 189 percent to Rs 2,024.6 crore, compared to a year ago, according to its stock exchange filing. While the bank reported strong growth in profits, its asset quality indicators worsened.

The gross non-performing assets (NPA) ratio rose to 7.89 percent of the total assets compared to 7.2 percent in the previous quarter.

While brokerages expect the bad loan formation (NPLs) to peak in FY18, they see provisions remaining higher. They said bulk of slippages have come from the known watch list accounts, which makes it less worrisome.

Credit Suisse

Maintains Outperform
Price target raised to Rs 340 from Rs 316 on roll forward

• While NPL additions spiked, the bulk of it was from “known” stress.
• With large slippage, watch-list shrunk to Rs 19,000 crore; however, non-NPL stress is still at 6 percent which with low provision cushion credit costs are likely to stay elevated.
• With core tier 1 ratio (CET1) at 13.7 percent and subsidiary stake sale potential the bank is comfortable on capital.
• Non-bank subsidiaries continue to do well and adjusted for this stock's valuation at one times book is inexpensive.

UBS

Maintains Buy
Price target unchanged at Rs 365

• Improvement in sequential net interest margin was a positive surprise.
• Bad loan formation likely to be much lower, but provisions likely to be higher in FY18 due to NPL ageing.
• Expect a recovery and upgrades from Q2FY18 onwards to offset the NPL increase.
• ICICI is trading below its five-year average price to book, and with NPLs peaking in FY18, expect a re-rating.

Motilal Oswal Securities

Maintains Buy
Price target raised to Rs 365 from Rs 350

• Overall pool of stressed loans is showing signs of stability, and bulk of NPA recognition is happening from watch list and restructured book.
• Excluding a cement account, slippages continued to moderate to ~Rs 5,900 crore as against Rs 7,000 crore in the December-ended quarter.
• Further expected measures by Reserve Bank of India for resolution of lumpy stressed loans provide comfort.
• Key positives: strong capitalisation, significant improvement in granularity of book, sustained improvement in liability profile.
• Cuts estimates by 5 percent to factor in net interest margin moderation with rising competition.