ICICI Bank Q1 results announced!

• Profit up 36%, misses estimates: Profit after tax grew by 36% YOY  to 2,599 crores for the quarter ended June 2020, however, core operating profit (profit before provisions and tax, excluding treasury income) grew by 15% year-on-year to ₹ 7,014 crores in June 2020.Net interest income (NII) increased by 20% YOY to ₹9,280 crores in Q1FY21 from ₹7,737 crores in Q1FY20. The net interest margin was 3.69% in Q1FY21 compared to 3.87% in the Q4FY20 and 3.61% in Q1FY20, reflecting the higher liquidity with the Bank due to strong deposit inflows and limited credit demand due to the lockdown.

• Stake sales support profit: 'One time gain ₹2,715.87 crores (consolidated) arising from 3.96% stake sale in ICICI Lombard General Insurance Company Limited and 1.5% in ICICI Prudential Life Insurance Company Limited helped to company’s net profit to shoot up.'
• COVID related provisions: During Q1FY21, the Bank has made an additional Covid-19 related provision amounting to ~ 5,550.00 crores. On June 30, 2020, the Bank held Covid-19 related provision of~ 8,275.00 crores. This additional provision made by the Bank is more than required as per the RBI guideline dated April 17, 2020.
• Asset quality improves: The net NPA ratio decreased from 1.41% in Q1FY20 to 1.23% in Q1FY21. The provision coverage on non-performing loans, excluding cumulative technical write-offs, increased from 75.7% in Q4FY20 to 78.6% in Q1 FY21. However, it must be kept in mind that the picture around the NPA’s of the banking sector will only be clear when the moratorium imposed by the RBI ends , the entire sector is expected to see a surge in NPA’s post moratorium.
• Management commentary: The bank said that during Q1FY21, the loan growth was impacted due to lower credit demand and fee income declined due to lower borrowing and investment activity by customers and lower consumer spends. The slowdown in the economy is expected to result in higher additions to non-performing loans, an increase in provisions, lower loan growth, and fee income.

Though the slippages might start to increase once the moratorium ends, the second-largest private sector bank has a strong capital and liquidity position to tackle the same. The Bank’s total capital adequacy at June 30, 2020, including profits for Q1- 2021, was 16.32% and Tier-1 capital adequacy was 14.93% compared to the minimum regulatory requirements of 11.08% and 9.08% respectively. The pressure is expected to been seen more on PSU banks, large private banks like HDFC Bank, ICICI, and Axis are expected to hold their ground.

Our proprietary VGQM model has  a BUY rating on the stock