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All-round performance; solidifies its leadership position

Asset quality improves slightly; cost control impressive

* ICICI Bank (ICICIBC) has reported six glorious years of performance since Mr. Sandeep Bakhshi took charge as MD & CEO on 15th Oct’18. The bank has consistently beaten street estimates on one or the other metric, even as the macro environment changed considerably over the years.  

* Just when it seems that the opportunities for positive surprises are exhausted and there is an uphill climb ahead, the bank comes up with another ace up its sleeve, thereby awing everyone with its superlative performance.

* During 2QFY25, ICICIBC reported 14.5% YoY growth in PAT (8% beat), driven by controlled provisions and further improvement in operating leverage.

 * NII stood in line while other income was healthy, driven by core fee and treasury income. NIMs contracted 9bp QoQ to 4.27%.  

* Credit growth was healthy at 15% YoY/4.4% QoQ, led by healthy traction in SME+BB and retail, as well as a pick-up in corporate lending. Deposit growth was healthy at 15.7% YoY/5.0% QoQ, enabling a 49bp QoQ decline in the CD ratio to 85.3%.

* On the asset quality side, slippages were controlled at INR50.7b/1.8%. GNPA/NNPA ratios, thus decreasing to 1.97%/0.42%, while the contingency buffer stood unchanged at INR131b (1.0% of loans).

* We increase our EPS estimates by 2.8%/1.8% for FY25/FY26 and estimate RoA/RoE of 2.19%/17.4% in FY26. Reiterate BUY with an SoTP-based TP of INR1,500 vs. INR1,400 earlier.  

Business growth robust; NIMs moderate 9bp QoQ

* ICICIBC’s 2QFY25 PAT grew 14% YoY to INR117.5b (8% beat), led by robust other income and controlled provisions and opex. The bank reported an annualized RoA of 2.39% and RoE of 18.1%.

* The bank reported 1HFY25 PAT at INR228.1b (up 14.5% YoY) and we expect 2HFY25 PAT to be at INR231.1b (up 10% YoY).

* NII grew 10% YoY/2.5% QoQ (in line) while NIMs contracted 9bp QoQ to 4.27%. Other income surprised positively, led by a healthy core fee income and treasury gains.

* Opex control was impressive as it grew at just 6.6% YoY (3% lower than MOFSLe). As a result, Pre-Provision Operating Profit (PPoP) grew 17.5% YoY/4.4% QoQ to INR167.2b (6% beat). Core PPoP grew 12.1% YoY/4.1% QoQ.

* On the  business front, advances grew 15% YoY/4.4% QoQ, led by healthy growth in BB+SME at 10.7% QoQ, while retail grew 2.8% QoQ. Within retail, housing grew at a healthy pace. Unsecured credit (PL/CC) continues to grow at a healthy pace. The unsecured loan mix stood at ~14% of the total loans. Corporate also grew at a healthy pace at 4.9% QoQ. V

* On the liability front, deposits grew 15.7% YoY/5% QoQ, led by faster growth in TDs, whereas CA and SA books grew at healthy 4% QoQ/4.4% QoQ, respectively. The CASA ratio, thus, stood at 40.6% (down 28bp QoQ).

? Fresh slippages decreased to INR50.7b/1.8% after the blip of KCC slippages in 1Q. GNPA/NNPA ratios declined to 1.97%/0.42%. PCR stood at ~79% in 2QFY25 (down 117bp QoQ).  

Highlights from the management commentary

* Near-term NIMs outlook: NIMs are expected to remain steady, and the bank suggested that barring the turn in the repo-rate cycle, 2H NIMs are likely to remain similar to 1H levels.

* The bank has refined its underwriting practices for unsecured loans. Although unsecured loan slippages have risen over time, there was no notable increase in 2QFY25.

* Fee income: There is considerable scope for the bank to enhance its fee income, particularly in transaction banking and asset-related services.

* The bank did higher write-offs in 2Q, largely attributed to older portfolios that the bank cleared out.  

Valuation and view: Reiterate BUY with a revised TP of INR1,500

ICICIBC once again reported a magnificent performance characterized by robust asset quality, impressive cost control, and healthy business growth. NII growth was in line, while NIM contracted 9bp QoQ. The bank's substantial investment in technology offers some cushion and we estimate the C/I ratio to improve to 39% in FY25E. A steady mix of high-yielding portfolio (PL, CC, Business Banking) and broadbased growth across product lines are enabling profitable growth while maintaining healthy business diversification. Asset quality has remained stable with no signs of stress, leading to improvement in the GNPA/NNPA ratios. Contingency provisioning buffer of INR131b (1.0% of loans) provides further comfort in case of any future cyclical stress. We increase our EPS estimates by 2.8%/1.8% for FY25/FY26 and estimate RoA/RoE of 2.19%/17.4% in FY26. We expect the bank to sustain a ~12% CAGR in PAT over FY24-26. Reiterate BUY with a revised SoTP-based TP of INR1,500 (2.6x Sep26E ABV + INR260 for subs; vs INR1,400 earlier).     

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