Buy ICICI Bank Ltd for the Target Rs 1,785 by Emkay Global Financial Services Ltd
ICICI Bank continues to deliver a PAT beat, of Rs148bn (+8% qoq/15.9% yoy), 10% ahead of our/consensus’ estimates. Global NIM declined by 18bps qoq to 4.18%, reflecting the impact of FCNR(B)-led overseas asset accretion and higher retail term deposits; domestic NIM, adjusted for tax-refund interest, was stable at 4.32%. Margins are expected to remain under pressure in 3QFY27 as FCNR(B) balances flow through the average balance sheet, with a gradual recovery anticipated from 4QFY27 as surplus liquidity is deployed. Asset quality improved further, with gross slippages declining 4.0% yoy to Rs48.3bn and net NPA ratio easing by 5bps qoq to 0.30%. With FCNR-induced credit growth of 30%, we increase our loan growth assumptions for FY27 to 30%, thereby increasing our earnings by 1-11% over FY27-29E. Hence, we retain BUY on the stock and TP of Rs1,785, based on 2.6x Sep-28E ABV and subsidiaries’ value at Rs300/sh.
Strong growth momentum continues
The bank delivered strong business growth in 2QFY27, with advances growing 30.0% yoy/12.0% qoq – 24.1%/7.3% excluding FCNR(B)-led international lending, driven by corporate banking, business banking, and a recovery in retail and rural lending. Reported global NIM declined by 18bps qoq to 4.18%, primarily due to the higher proportion of lower-yielding overseas assets funded through FCNR(B) deposits, increased retail term deposits, and absence of the 8bps tax-refund interest benefit recorded in 1QFY27; however, domestic NIM excluding this benefit was broadly stable at 4.32%. Management expects further near-term NIM moderation in 3QFY27 before seeing recovery from 4QFY27, as excess liquidity is deployed and funding-mix effects normalize.
Asset quality improves amid strong loan growth
Asset quality continued to improve, with slippages moderating to 1.37%, while PCR was stable at 75%. Lower stress in personal loans and credit cards, negligible corporate slippages, and improved recoveries supported net additions of Rs12.1bn. Credit costs remained benign at 20bps, below the normalized guidance of ~50bps. The bank retains a healthy provisioning buffer of Rs131bn in contingency provisions, providing additional protection against potential asset-quality risks. The bank did not utilize contingency provisions during the quarter, with the contingency provision buffer remaining substantial at Rs131bn.
We retain BUY on ICICI Bank We believe ICICIB is well-positioned to deliver 2.2-2.3% ROA over FY27-29E, aided by better growth, cost management, and contained LLP. This, along with credible management and strong provision/capital buffer, should help the bank maneuver the ongoing macro turbulence and still deliver superior ROA. Thus, we retain BUY with unchanged TP of Rs1,785, based on 2.6x Sep-28E ABV and subsidiaries’ value at Rs300/sh. Key risks: Macro slowdown hurting growth and attrition of top management.
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