ICICI Bank Q3 Results: Weaker NIMs May Lead to Selling Pressure on Tuesday

The third quarter results of ICICI Bank were keenly awaited given the broad sell-off seen in banking sector stocks earlier this week following the results of larger rival HDFC Bank.

In the case of ICICI Bank, the pressure point, in terms of net interest margins (NIMs), is visible in the December 2023 quarter.

ICICI Bank reported NIMs of 4.43% in the third quarter of FY24 vis-a-vis 4.65% a year earlier, and 4.53% in the September 2023 quarter.

Larger rival HDFC Bank reported NIMs of 3.6% in the December 2023 quarter on interest earning assets similar to the levels reported in the September 2023 quarter.

Meanwhile, smaller rival, Kotak Mahindra Bank reported NIMs of 5.22% in the third quarter of FY24 vis-a-vis 5.47% a year earlier. Kotak's NIMs were stable on a sequential basis.

Analysts pointed out that with the tight monetary policy of the central bank coupled with the recent tougher norms related to unsecured lending, it has become difficult for banks to sustain NIMs that were seen in the first half of the financial year.

An improvement in this key operational parameter is expected only when the rate cycle starts gradually easing over the next 6-9 months.

Meanwhile, the operational performance of ICICI Bank was broadly better that expected - its standalone net profit grew 23.6% YoY to Rs 102.7 bn in the third quarter, helped by a 13.4% YoY rise in net interest income (NII) and fee income that grew 19.4% to Rs 53.1 bn.

ICICI Bank's asset quality was also good - percentage of net non-performing customer assets to net customer assets was 0.44% in the third quarter of FY24 vis-a-vis 0.55% a year earlier.

Rival, HDFC Bank's asset quality was stable as well - percentage of net NPAs to net advances was 0.31% in the December 2023 quarter.

ICICI Bank's Growth Outlook

ICICI Bank share price gained 0.9% on Saturday to close at Rs 1,008. The third quarter results of ICICI Bank were declared after the close of Saturday trade.

The stock price of ICICI Bank could see some selling pressure on the next trading session on Tuesday owing to weaker NIMs.

ICICI Bank hit a 52-week high of Rs 1,042.7 on 15 December 2023.

In the past one year, ICICI Bank share price has gained 16%.

Here's a table comparing ICICI Bank with its peers.

Comparative Analysis

Company	ICICI Bank	Kotak Mahindra Bank	HDFC Bank	IndusInd Bank
ROE (%)	17.7	14.2	17.2	14.5
ROCE (%)	15.4	13.9	15.2	13.1
Latest EPS (Rs)	60.5	87.8	77.8	111.5
TTM PE (x)	16.7	20.6	19.1	13.8
TTM Price to book (x)	3.1	3.0	2.6	1.9
Dividend yield (%)	0.8	0.1	1.3	0.9
Industry PE	18.2
Industry PB	2.5

Data Source: Ace Equity

In Conclusion

The loan demand in the broader economy is expected to remain robust over the next few years, given that the growth rate of the Indian economy is expected to be over 6.5% over the next few years.

However, pressure on NIMs for leading banks is expected to continue over the next few quarters and that could put a dampener on investor interest for stocks in this sector including larger players.

ICICI Bank trades at a PE of 16.7 times estimated standalone FY24 earnings, broadly similar to the valuations for HDFC Bank on a standalone basis.

Kotak Mahindra Bank trades at a P/E of 20.8 times for estimated FY24 earnings on a standalone basis.

Beyond its core banking operations, ICICI's subsidiaries and joint ventures play a vital role in the non-banking financial services arena, encompassing areas like life and general insurance, asset management and equity broking.

To know more about the company, check out its financial factsheet and latest financial results.

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