Buy ICICI Bank Ltd for the Target Rs.1,750 by Motilal Oswal Financial Services Ltd
* ICICI Bank (ICICIBC) reported 2QFY27 PAT of INR148.4b (in-line), led by strong core performance and controlled provisions.
* NIMs declined by 18bp QoQ (10bp QoQ decline adj for IT refund benefit in 1QFY27) to 4.18% (in-line). Margin is expected to improve from 4Q onwards once the full impact of FCNR(B) is seen in 3QFY27.
* The strength as well as the quality of earnings from ICICI Bank remains commendable. The bank continues to deliver growth (loan growth at 30% YoY) and profitability (RoA at ~2.3%) at a scale which is beyond aspiration for most peers.
* Fresh slippages declined 4% YoY/13% QoQ to INR48.3b. GNPA/NNPA ratios improved by 18bp/5bp QoQ at 1.2%/0.3%.
* We raise our earnings estimate by 3% for FY28 factoring in FY28E RoA/RoE of 2.4%/17.6%. ICICIBC remains our top BUY in the sector with a TP of INR1,750 (2.5x Mar’28E ABV).
Margins to improve from 4Q; Earnings quality robust
* ICICIBC’s 2QFY27 PAT grew 20% YoY to INR148.4b (in-line); This was led by robust loan growth, strong operating profits and lower provisioning. Consolidated PAT increased 22.3% YoY to INR163.3b.
* NII grew 17.7% YoY/3.9% QoQ to INR253.4b (in-line). Reported NIMs declined by 18bp QoQ to 4.18% (10bp QoQ decline adj for interest on IT refund in 1QFY27).
* Other income stood at INR80.5b (10% miss), while core fee income grew by 20.1% YoY on the back of FCNR(B) related processing fee. Bank reported a treasury loss of INR2.3b v/s a gain of INR1.5b in 1QFY27.
* Opex increased 8.5% YoY/1.9%QoQ to INR128.1b, led by cost of raising bonds to fund the FCNR (B) leverage largely offset by the banks fee income. C/I ratio increased to 38.4% vs 38.1% in 1QFY27. Core operating profit grew 21.8% YoY / 2.8% QoQ to INR208.1b.
* On the business front, advances growth was robust at 30% YoY/12.3% QoQ, led by continued traction in business banking (up 33.8% YoY/11.1% QoQ) as well as domestic corporate (up 30.6% YoY/ 10.4% QoQ). While retail and rural banking portfolio grew at 14.8% YoY/3.2% QoQ.
* Deposits rose 27.1% YoY (up 11.8% QoQ), with CASA deposits at 10.7% YoY/ 1.4% QoQ. CASA ratio thus declined to 36.1% (vs 39.5% in 1QFY27).
* Fresh slippages declined 4% YoY at INR48.3b. GNPA/NNPA ratios improved by 18bp/5bp QoQ at 1.2%/0.3%. PCR ratio improved slightly to 75.5%. Contingency buffer remained stable at INR131b.
Valuation and view
ICICIBC reported yet another strong quarter with exceptional business growth, strong core profits and robust asset quality metrics. NIMs declined by 18bp QoQ (10bp QoQ decline adjusted for interest on IT refund in 1Q). NIMs are expected to improve from 4QFY27 after moderation in 3QFY27 once the full impact of FCNR (B) is reflected. Provisions were lower than expected reflecting strong asset quality and sustained lower slippages, while the bank maintains its conservative credit cost guidance of 50bp. We believe that the bank is well poised to deliver 2.34%/2.38% RoA over FY27/FY28. Asset quality is among the one of the best in the industry while healthy contingency buffer at INR131b (0.7% of loans) provides comfort. We raise our earnings by 3% for FY28E estimating RoA/RoE of 2.4%/17.6%. ICICIBC remains our top BUY in the sector with a TP of INR1,750 (2.5x Mar’28E ABV).
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