Buy ICICI Bank Ltd For Target Rs. 1,500 By Yes Securities Ltd
ICICI closest to being the optimal banking model
Our view – ICICI seems to recoup via opex and credit cost what its losing on growth and margin
Asset Quality – Slippages rose on sequential basis but primarily due to seasonal agri slippages: Gross NPA additions amounted to Rs 60.85bn for 3QFY25 (Rs 50.73bn in 2QFY25), translating to an annualized slippage ratio of 1.8% for the quarter. The KCC book saw slippages worth Rs 7.14bn in 3Q. On unsecured retail, management stated that the bank had taken corrective steps earlier and trends have now stabilized. Provisions were Rs 12.27bn, down by -0.5% QoQ but up by 16.9% YoY, translating to annualised credit cost of 37bps. Net provisions benefited from improvement in nonfund portfolio, restructured book and BB and below book which have led to writebacks.
Net Interest Margin - NIM saw a marginal contraction sequentially driven by interest reversals on agri slippages: NIM was 4.25%, down -2bps QoQ and -18bps YoY. The 8 bps decline QoQ in yield on advances was driven by interest reversals on KCC slippages, for which interest for a longer period gets reversed. Management shared that its share of floating rate loans were 69% of loan book, of which 52% was repo rate linked loans.
Balance sheet growth – Balance sheet growth was better than large peers but slower than its own recent trend: Total advances for the bank stood at Rs 13,144 bn, up by 2.9% QoQ and 13.9% YoY. The retail loan book growth was relatively slow at 10.5% YoY and 1.4% QoQ. The mortgages book growth was slow at 11.4% YoY and 2.1% QoQ, impacted by competitive pressure. Auto loans were slower, growing 6.6% YoY and 1.7% QoQ, impacted by the OEM sales slowdown.
We maintain ‘Buy’ rating on ICICI with a revised price target of Rs 1500: We value the standalone bank at 2.8x FY26 P/BV for an FY25/26/27E RoE profile of 17.5/16.2/16.2%. We assign a value of Rs 234 per share to the subsidiaries, on SOTP.
(See Comprehensive con call takeaways on page 2 for significant incremental colour.)
Result Highlights (See “Our View” above for elaboration and insight)
* Opex control: Total cost to income ratio at 38.5% was down by -12/-212bps QoQ/YoY and the Cost to assets was at 2.1% down by -6/-18bps QoQ/YoY.
* Fee income: Core fee income to average assets was at 1.2%, up 2/3bps QoQ/YoY.
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