Buy ICICI Bank Ltd For Target Rs.1,550 by Motilal Oswal Financial Services Ltd
Another steady quarter; asset quality ratios stable
Controlled opex and credit costs aid earnings
* ICICI Bank (ICICIBC) delivered another steady quarter in a highly uncertain environment as credit costs stood at just 37bp, the 3Q slippage rate came in lower than 1Q, and the reported RoA was 2.36% (2.37% for 9MFY25). The bank delivered 11% growth in advances during 9MFY25 and remains on track to beat peers and the industry. The bank’s performance amid the current challenging environment has reminded us of the famous proverb, “When the going gets tough, the tough get going!”.
* ICICIBC’s 3QFY25 PAT of INR117.9b (3% beat) grew 15% YoY fueled by lower-than-expected provisions.
* NII grew 9.1% YoY to INR203.7b (in line). NIM moderated 2bp QoQ to 4.25%. Fee income grew 16.3% YoY to INR61.8b, while treasury gains stood at INR3.71b vs. INR1.23b in 3QFY24.
* Net advances rose 13.9% YoY/2.9% QoQ, while domestic net advances increased 15.1% YoY/3.2% QoQ. Deposit growth was modest at 14.1% YoY/1.5% QoQ. However, the average CASA mix was stable at 39%.
* On the asset quality front, fresh slippages stood at INR60.85b (INR50.73b in 2QFY25). GNPA ratio declined 1bp QoQ to 1.96% while the Net NPA ratio was stable at 0.42%. PCR moderated 29bp QoQ to 78.7%, while the contingency buffer stood unchanged at INR131b (1.0% of loans).
* We broadly retain our earnings estimate and project an RoA/RoE of 2.2%/16.8% in FY27. Reiterate BUY with a revised TP of INR1,550 (premised on 2.5x FY27E ABV).
Deposit growth modest; NIM moderates 2bp QoQ
* ICICIBC’s 3QFY25 PAT grew 15% YoY to INR117.9b (3% beat), led by higher-than-expected other income and controlled provisions and opex. The bank reported an annualized RoA of 2.36%.
* The bank reported 9MFY25 PAT at INR346b (up 14.6% YoY), and we expect 4QFY25 PAT to be at INR119.8b (up 12% YoY).
* NII grew 9.1% YoY to INR203.7b (in line). NIM moderated 2bp QoQ to 4.25%. Other income grew 16% YoY to INR70.7b (4% beat). Total revenue thus increased 11% YoY to INR274.4b (in line).
* Opex grew 5% YoY/was flat QoQ at INR105.5b (2% lower than MOFSLe). C/I ratio thus declined to 38.5%. As a result, PPoP grew 15% YoY to INR168.9b (in line).
* On the business front, advances grew 13.9% YoY/2.9% QoQ, led by a healthy 6.4% QoQ growth in Business banking. Retail and rural grew 1.4% QoQ. Within retail, credit cards continued to grow at a healthy pace, whereas personal loans declined 1.3% sequentially. The unsecured loan mix stood at ~13.5% of the total loans. Corporate book growth was steady at 4.3% QoQ.
* On the liability front, deposits grew at a modest 14.1% YoY/1.5% QoQ. However, the average CASA ratio improved 10bp sequentially to 39%.
* Fresh slippages stood at INR60.85b (barring agri at INR53.7b). GNPA ratio declined 1bp QoQ to 1.96% while the Net NPA ratio was stable at 0.42%. PCR moderated 29bp QoQ to 78.7%
Highlights from the management commentary
* Of the total domestic loan book, 31% has a fixed interest rate, 52% has an interest rate linked to the repo rate, 1% is linked to other external benchmarks, and 16% has an interest rate linked to MCLR and other older benchmarks.
* Credit costs stood at 37bp in 3QFY25, and management expects to continue the target of ~50bp going forward.
* The deposit growth was modest due to funding requirements and the CRR cut in the middle of Dec’24. The RIDF portfolio has also seen some reduction.
* On the retail front, secured books witnessed very low slippages. Within unsecured loans, delinquencies have increased over the past few quarters, and ICICIBC has taken corrective actions to arrest the overall slippages.
Valuation and view: Reiterate BUY with a revised TP of INR1,550
ICICIBC once again reported a healthy performance even in the current challenging environment characterized by controlled provisions, impressive cost control, healthy other income, and stable asset quality (ex-agri). NII growth was in line, while NIM contracted 2bp QoQ. The bank's substantial investment in technology offers some cushion while continued productivity gains have helped maintain a tight leash on cost ratios. A steady mix of high-yielding portfolio and broad-based growth across product lines are enabling profitable growth while maintaining healthy business diversification. Secured asset quality remained stable (ex-agri) with no signs of stress, leading to improvement in the GNPA ratio. The contingency provisioning buffer of INR131b (1.0% of loans) provides further comfort in case of any future cyclical stress. We tweak our earnings estimates and project RoA/RoE of 2.2%/16.8% in FY27. Reiterate BUY with a revised TP of INR1,550 (based on 2.5x FY27E ABV).
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