12-11-2024 02:39 PM | Source: Emkay Global Financial Services Ltd
Buy ICICI Bank Ltd For Target Rs.1,450 By Emkay Global Financial Services

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ICICI Bank posted a 3% beat on PAT at Rs117bn and a superior RoA of 2.4% among peers, primarily due to healthy NII and better fees/treasury gains. Defying industry and peer trends, the bank clocked healthy credit growth at 15% YoY/4% QoQ, driven by some pick-up in corporate, business banking, and non-PL retail book. Deposit growth was equally healthy at 16% YoY/5% QoQ, while the bank maintains reasonable LCR at 120%. Amid most peers reporting higher NPAs, ICICIB continues to witness steady improvement in GNPA ratio to ~2%, while sustaining healthy specific PCR at 79%/contingent buffer @1% of loans amid rising stress in unsecured loans across industry. Management has indicated being cautious on unsecured loans (mainly PL), but believes that overall stress levels remain well below tolerable levels. ICICIB remains our preferred pick in the banking space, given its superior returns profile (RoA: >2%), top-management credibility, and strong capital/provision buffers. We retain BUY on ICICIB with TP of Rs1,450, rolling forward on 2.6x Sep-26E ABV (deserving premium over HDFCB @2.3x) and subsidiaries at Rs215/sh.

Better-than-peer growth trajectory

Defying industry and peer trends, ICICIB reported healthy credit growth at 15% YoY/4% QoQ. This is mainly driven by some pick up in corporate book, BuB book growing at 30% YoY, and retail also growing at a healthy pace – 14.2% YoY, despite conscious slowdown in the PL book. Deposit growth outpaced industry trend as well at 16% YoY/5% QoQ, leading to a decline in LDR at 85% (-50bps). This, coupled with slight moderation in loan yields (as growth in unsecured loans eases and possibly lower penal interest) and rising CoF led to 9 bps QoQ compression in NIM to 4.27%. Going forward, the bank guides to turn cautious on unsecured loans, while continues to inch-up secured loan growth.

Strong show on asset quality amid deterioration seen across banks

ICICIB reported a decline in gross slippages at Rs51bn/1.8% of loans from seasonally higher delinquencies in 1Q due to KCC. This, coupled with higher write-offs led to lower GNPA/NNPA ratios at 2%/0.4% of loans, respectively. Management indicated that stress in unsecured loans has increased over the past 3-4 quarters, but is unlikely to surge as it has taken corrective measures with respect to underwriting, customer quality, and other filters. Additionally, the bank sustains high PCR of 79% and contingent provision buffer at Rs131bn/1% of loans, providing comfort amid rising system-level risks. Bank guides for LLP at 0.4-0.5% of loans in FY25E vs 0.1% earlier, as benign asset quality scenario is already behind.

ICICI Bank remains our preferred pick in the banking sector

ICICIB remains our preferred pick in the banking space, given its superior returns profile (RoA: >2%), top-management credibility, and strong capital/provision buffers. We retain BUY on ICICIB with TP of Rs1,450, rolling forward on 2.6x Sep-26E ABV (deserving premium over HDFCB @2.3x) and subsidiaries at Rs215/sh. Key risks: Higher middle/senior management attrition leading to business dislocation, and slower-thanexpected growth/margin trajectory owing to macro disruptions.

 

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