Buy ICICI Bank Ltd For Target Rs. 1420 By JM Financial Services
Asset quality on a firm footing; growth steady
ICICI Bank reported a steady, in-line performance with PAT at INR 117.9 (+14.8% YoY) and robust return metrics (RoA/RoE at 2.36%/17.8%). Margins (calc.) witnessed a slight contraction to 4.08% (-6bps QoQ) primarily driven by seasonal slippages in the KCC portfolio and a marginal inch up in CoD (+3bps QoQ). As the sector contends with increasing delinquencies in unsecured portfolios, ICICIB continues to navigate these headwinds with credit costs remaining at benign levels of 0.38% (vs 0.39% QoQ). Mgmt. acknowledged that asset quality challenges in the unsecured segment are impacting the bank as well, however, their proactive measures such as tightening underwriting filters, focusing on ETB customers (~60% of the portfolio), and moderating growth in higher-risk segments (PL -1.3% QoQ, CC +2.8% QoQ) have been instrumental in preserving asset quality. Gross slippages saw a slight uptick sequentially to 1.88% (vs 2.02% YoY) driven by seasonality in the KCC portfolio (INR 7.14bnn vs 6.17bn YoY). Loan growth remained steady at (+13.9% YoY, +2.9% QoQ), however, deposit growth mirrored broader industry trends, growing (+1.5% QoQ, 14.1% YoY) as sector-wide deposit accretion remains a challenge. Despite an industry-wide slowdown, ICICI Bank continues to demonstrate strong resilience and remains one of our top picks in the banking sector. Bank’s performance in 3QFY25 underscores its premium valuations, as it continues to outperform peers, even amidst the systemic concerns surrounding the unsecured segment and the broader liquidity crunch. We expect RoA/ROE of 2.25%/17.2% by FY27E. Maintain BUY with an SOTP based TP of INR 1,420 (valuing the core bank at 2.3x FY27E BVPS).
* Growth remains steady; in-line operating performance: Advances grew by (+13.9% YoY, +2.9% QoQ) with business banking leading the pack at (+6.4% QoQ) followed by domestic corporate segment which grew by (+4.3% QoQ, +9.5% YoY), and retail segment (+1.4% QoQ, +9.4% YoY). Within retail segment growth was led by mortgage book (+2.1% QoQ, +11.4% YoY). Amid industry-wide asset quality pressures in the unsecured lending space, the bank prudently tightened its underwriting filters, resulting in a more cautious approach to growth in PL (-1.3% QoQ) and CC (+2.8% QoQ). Deposit growth remained somewhat subdued (+1.5% QoQ, 14.1% YoY) reflecting broader industry trends where deposit accretion continues to be a challenge. However, CASA ratio remained stable at a healthy 40.5%. Operating performance was steady and inline (+1% QoQ, +14.7% YoY, in-line JMFe) led by a) stable NII (+9.1% YoY, +1.6% QoQ) and b) healthy non-interest income (+15.9% YoY). Margins (calc.) witnessed a slight contraction to 4.08% (-6bps QoQ) primarily due to seasonal slippages in the KCC portfolio and a minor uptick in the CoD (+3bps QoQ).
* Asset quality holds in good stead: While the sector continues to grapple with rising delinquencies in its unsecured portfolios, ICICI Bank stands out by maintaining its asset quality in an enviable position. GNPA/NNPA for the quarter stood at 2.08%/0.45% (+1bps QoQ/flat QoQ). Credit costs continue to be at benign levels of 0.38% (vs 0.39% QoQ). Mgmt. has time and again iterated that while asset quality may not remain at these exceptionally low levels indefinitely, any normalization should not be cause for concern. Bank has been proactive in tightening its underwriting filters, which positions it well to manage potential shifts in asset quality. Gross slippages saw a slight inch up sequentially to 1.88% (vs 2.02% YoY) driven by seasonality in KCC portfolio (additions of INR 7.14bnn vs 6.17bn YoY). We build avg. credit cost of 0.56% over FY25E/27E.
* Valuations and view: Despite an industry-wide slowdown, ICICI Bank continues to demonstrate strong resilience and remains one of our top picks in the banking sector. The bank’s performance in 3QFY25 underscores its premium valuations, as it continues to outperform peers, even amidst the systemic concerns surrounding the unsecured segment and the broader liquidity crunch. We expect RoA/ROE of 2.25%/17.2% by FY27E. Maintain BUY with an SOTP based TP of INR 1,420 (valuing the core bank at 2.3x FY27E BVPS).
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SEBI Registration Number is INM000010361
