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ICICI Bank delivered an impressive performance in Q2 FY25, exceeding market expectations with robust business growth, strengthened asset quality, and disciplined cost management. The bank reported a 14.5% YoY surge in PAT to ?117.46 bn, slightly above consensus estimates, primarily driven by lower credit costs and well-contained operating expenses. NIMs stood at 4.27%, slightly trailing previous quarters due to elevated deposit costs. While some margin pressure may persist into FY25, the bank’s vigorous loan growth and superior asset quality are expected to provide a cushion and sustain profitability. PPOP Growth Stays Healthy: PPOP grew by 8.8% YoY and 2.1% QoQ driven by NII growth and lower Opex growth. NII rose by 8.1% YoY and 2.2% QoQ. Opex grew by 8.7% YoY and declined 3.5% QoQ. Other income was below than estimates, it rose by 11.0% YoY and dropped by 7.7% QoQ.

* Loan growth continues to remain a key highlight, with net advances increasing 15% YoY and 4.4% QoQ, led by a stellar 30% expansion in the business banking segment. Retail loans grew by a healthy 14.2% YoY, underpinned by strong demand in personal loans (17.3% YoY) and credit cards (27.9% YoY). The bank’s deposit base expanded by 15.7% YoY, with term deposits rising 15.9% YoY and 5.5% QoQ, further fortifying its liquidity position.

* Asset quality shows remarkable improvement: GNPAs declined to 1.97%, reaching the lowest level in over a decade, highlighting the bank’s strong asset quality improvement. The provision coverage ratio (PCR) remained robust at 78.5%, reflecting ICICI Bank’s prudent approach to provisioning and effective risk management. Gross slippages reduced to Rs.50.73 bn, down from Rs.59.16 bn in the previous quarter, while credit costs stayed low at 0.38% of average advances. Furthermore, the bank’s restructured loan book continued its downward trend, decreasing to Rs.25.46 bn, indicating successful resolution efforts on stressed assets.

* Operational efficiency remained a standout, with PPOP rising 12.1% YoY, driven by a 9.5% YoY growth in NII, reaching Rs.200.48 bn. The cost-to-income ratio improved to 38.6%, demonstrating the bank's strong focus on cost control and efficiency enhancement. Operating expenses grew by a modest 6.6% YoY, considerably outperforming the industry average. Employee costs saw an increase of 11% YoY, while non-employee expenses were well-managed, growing by only 3.8% YoY, underscoring the bank's disciplined approach to managing operational costs.

View and Valuation: ICICI Bank’s performance in Q2 FY25 reinforces its status as one of India’s top-performing banks, underpinned by a well-executed growth strategy and solid fundamentals. The management’s focus on leveraging digital platforms, expanding in highgrowth segments like business banking, and maintaining prudent risk management ensures the bank remains resilient amid margin pressures. With a disciplined approach to cost control and a strong balance sheet, ICICI Bank is well-positioned to continue delivering consistent earnings growth. RoA stood at 2.39%, maintaining its track record of staying above 2% for 10 consecutive quarters, while RoE was 18.1%, highlighting the bank’s ability to generate value for shareholders. We upgrade our BUY rating to OUTPERFORM, and revise the target price to Rs.1,585, valuing the core business at Rs.1374 (P/ABV 3x FY26E) and subsidiaries at Rs.211 per share.

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