Top private banks, HDFC Bank, ICICI Bank and Axis Bank have reported their earnings for the first quarter of FY25 in line with analysts’ estimates. While net profits of the banks grew led by healthy growth in credit and other income, asset quality normalised and net interest margins (NIM) eased.
Q1 results of large banks suggest that recoveries are reducing and normalizing, while write-offs are rising. The lenders are fighting three incremental negatives, lower NIMs, higher credit costs and deposit challenges.
While ICICI Bank Q1 results were strong, Axis Bank missed analysts' estimates with higher credit costs. HDFC Bank, on the other hand, saw a good quarter with a beat on core net profit due to better NIM, opex and provisions.
HDFC Bank Q1 Results: HDFC Bank’s earnings were broadly as estimated, characterized by weaker business growth but better NIMs as the bank alluded to preference for profitable growth outcome. Qualitatively, better NIMs, LCR improvement and lower LDRs were silver linings, according to Elara Capital.
ICICI Bank Q1 Results: ICICI Bank delivered another steady quarter, reflected in resilient earnings delivery, with Q1 net profit ahead of analysts’ estimates on lower credit cost and higher treasury income. Core profitability (ex-treasury) growth came in below trend, up 11% YoY, but curtailed credit cost bolstered 15% YoY earnings growth. The private sector lender witnessed healthy loan growth of 15.7% YoY, while moderation in margins remains within comfortable range at 4.36%.
Axis Bank Q1 Results: Axis Bank Q1 results were characterized by softer loan growth and even weaker deposits growth (dip QoQ), further spiking CD ratios, steady NIM supported by interest on IT refunds, lower and higher credit cost.
“Banking sector Q1 results are so far in line with estimates with ICICI Bank delivering strong performance, while Axis Bank results being not up to the mark. The cost of borrowing for the sector remains high. Banks will likely continue witnessing net interest margin (NIM) pressures until the interest rate cut cycle kicks off along with concerns over deposit growth. While we are witnessing the best environment regarding asset quality, we may see a marginal rise in NPAs going forward,” said Ajit Kabi, Research Analyst at LKP Securities.
Analysts at JM Financial believe ICICI Bank continues to deliver healthy risk-adjusted margins and is well-placed on LDR as well. While there could be some moderation on headline growth metrics given systemic issues around liquidity/deposit growth, they believe ICICI Bank should still deliver healthy growth amongst peers.
In terms of valuations, Axis Bank is LKP Securities' preferred pick after the recent correction in the stock post Q1 results, followed by HDFC Bank. According to Kabi, Axis Bank and HDFC Bank have the potential for re-rating.
ICICI Bank comes third in line of preference as the valuations seem relatively higher after the recent run-up, which makes it unlikely for re-rating, he said.
He has ‘Buy’ rating on all three banking stocks - HDFC Bank shares, ICICI Bank shares and Axis Bank shares.
HDFC Bank share price target is set at 15% higher from the current market price (CMP) at around ₹1,880 per share, Kabi said. ICICI Bank share price target is around ₹1,430 per share, which implies a 17% upside from CMP, while Axis Bank share price target is set at around ₹1,420 per share.
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