Buy ICICI Bank s Ltd For Target Rs.1,400 By JM Financial Services
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ICICI Bank reported a beat in PAT at INR 110.6bn (+15%YoY, +3.3% QoQ, +5.9% JMFe) led majorly by treasury gains of INR 6.1bn coming in largely from redemption of security receipts. Margins held up well at 4.36% (-4bps QoQ) with NII growth of +7.3% YoY, +2.4% QoQ. Employee costs were elevated at INR 44bn (+17.5% YoY, +12.5% QoQ) which led to a PPoP of INR 160bn (+13%, +6.6% QoQ). Credit costs were higher at 47bps of total advances (vs 26bps QQ) due to higher slippages coming in from kisan credit card portfolio of INR 7.2bn (a usual Q1). Gross slippages were up +21bps QoQ. Deposit growth was subdued at +0.9% QoQ as CASA deposits de-grew at -2% QoQ whereas, TDs grew +3.1% QoQ. This resulted in CASA ratio of 40.9% vs 42.2% QoQ (daily avg. CASA 39.6% vs 38.9% QoQ). Loan growth was strong at +15.7% YoY/+3.3% QoQ which was spread across the segments while deposits were flattish QoQ (+18% YoY, +3.3% QoQ on avg balances). The bank remains well capitalised with CET-1 at 15.24% supported by LDR at 85.8% and LCR of 123%. ICICI Bank continues to deliver healthy risk-adjusted margins and is well-placed on LDR as well. While there could be some moderation on headline growth metrics given systemic issues around liquidity/deposit growth, we believe ICICI Bank should still deliver healthy growth amongst peers. Also, recent emerging issues around unsecured asset quality should not see any meaningful dent to ICICI Bank's RoA metrics, in our view. We maintain our BUY rating on the bank with a revised target price of INR 1,400 (core bank valued at 2.6x FY26E BVPS) with subs valued at INR 186.
* Strong loan growth: ICICI Bank witnessed healthy loan growth of +15.7% YoY/+3.3% QoQ at INR 12.2bn. Growth was spread across segments with Retail/SME/ Domestic Corporate/ Overseas loans growing at +3.3%/ +4%/+3.1%/+3.3% QoQ. Within retail, business banking (+8.9% QoQ), credit cards (+4.2% QoQ), rural loans (+3.4% QoQ) and home loans (+2.5% QoQ) continued to drive growth. Mgmt highlighted that PL growth would continue to slow down to 20% YoY (+25% in 1QFY25) due to new RWA guidelines. Domestic book grew at +16.8% YoY/ +3.2% QoQ. Deposits growth was subdued at +15.1% YoY/ +0.9% QoQ due to intensified competition to maintain LDR ratio into the guided range by RBI. CASA deposits de-grew at -2% QoQ whereas, TDs grew +3.1%QoQ. This resulted in CASA ratio of 40.9% vs 42.2% QoQ (daily avg. CASA 39.6% vs 38.9% QoQ). Currently, bank’s LDR stands balanced at 85.8%. We expect ICICI to continue with its growth momentum with advances/deposit CAGR at 16% over FY24-26E
* Higher treasury gains aid PAT: Moderation in margins remains within comfortable range at 4.36% (-4bps) as YoA was down -8bps and CoD was up +2bps QoQ. Higher noninterest income led by treasury gains of INR 6.13bn and higher employee costs (+12.5% YoY, +18% QoQ) led to PPoP of INR 160.2bn (+13% YoY/ +6.6% QoQ). Mgmt continues to guide for 10-13% YoY growth in opex going forward. Credit cost stood at 47bps (-6bps YoY, +21bps QoQ) which resulted in PAT of INR 110bn (+3.3% QoQ/ +14.6% YoY). We expect earnings CAGR of 17% over FY25A-26E.
* Steady Asset quality: Asset quality remained largely stable as GNPA/NNPA stood at 2.3%/ 0.46% (-2bps/+1 QoQ). Gross slippages were higher at 2.08% vs 1.87% QoQ due to higher slippages of INR 7.2bn from kisan credit cards portfolio. Management believes that credit costs (adjusted for seasonal impact of agri slippages) should be contained ~50bps of loans. Given ICICI Bank's focus on ETB customers in unsecured categories and strong risk focus, we build avg. credit cost of 52bps over FY25-26E. Also, ICICI Bank's excess provisions (at ~1.1% of loans) offer significant comfort.
* Valuation and view:ICICI Bank continues to deliver healthy risk-adjusted margins and is well-placed on LDR as well. While there could be some moderation on headline growth metrics given systemic issues around liquidity/deposit growth, we believe ICICI Bank should still deliver healthy growth amongst peers. Also, recent emerging issues around unsecured asset quality also should not see any meaningful dent to ICICI Bank's RoA metrics, in our view. We maintain our BUY rating on the stock with the bank a revised target price of INR 1,400 (core bank valued at 2.6x FY26E BVPS) with subs valued at INR 186
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SEBI Registration Number is INM000010361
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