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Axis Securities Report
ICICI Bank Ltd. reported a healthy credit growth of 19/4% YoY/QoQ, in line with our expectations. Retail book grew by 21%/5% YoY/QoQ, and business banking grew by 32/7% YoY/QoQ. The small and medium enterprise book grew by 28/7% YoY/QoQ and the corporate book grew by 13/3% YoY/QoQ.
Deposit growth was at 3% QoQ versus 5% in Q2 FY24. Current account and savings account deposits growth was flat QoQ, while term deposits grew by 5% QoQ.
Net interest income grew by 13/2% YoY/QoQ. Margins declined by ~10 bps QoQ, largely in line with our expectations and stood at 4.43%. Non-interest income growth (+21/6% YoY/QoQ) was driven by fee income (+19/2% YoY/QoQ).
ICICI Bank reported a treasury gain of Rs 123 crore during the quarter. Opex growth was modest at 22/2% YoY/QoQ. The cost-income ratio was largely steady at 40.6% versus 38.2/40.9% YoY/QoQ.
Pre-provision operating profit grew by 11%/3% YoY/QoQ. Provisions were marginally higher versus expectations, owing to a contingent provision of Rs 627 crore towards alternative investment funds pursuant to the RBI circular. Credit costs stood at 37 bps versus 94/21bps YoY/QoQ. Profit after tax remained flat QoQ.
Gross non-performing asset improved to 2.3% versus 2.5% QoQ. The slippage ratio was at 2% versus 1.7% QoQ; however, healthy recoveries resulted in asset quality improvement. The bank continues to hold a contingent provision of Rs 13,100 crore (~1.1% of loans).
Outlook:
ICICI Bank has been delivering a consistently superior performance across metrics. The bank has delivered a strong performance in nine months-FY24 and we expect the bank to exit FY24 with another strong performance. With the bank looking to calibrate growth in the unsecured segment, especially pockets exhibiting higher delinquencies, it is likely to witness a gradual moderation in these segments.
However, it would also help the bank keep credit costs under control. Despite margin pressures and credit costs normalising as the book seasons, we believe ICICI Bank is comfortably placed to deliver a consistent return on asset of 2% plus over the medium term.
Valuation and recommendation
We reiterate our 'Buy' recommendation, valuing the stock at 2.75 times Sep-25E adjusted book value (versus current valuation of 2.6 times Sep-25E adjusted book value) its core book and a subsidiary value of Rs 163/share, to arrive at a target price of Rs 1,250/share. The target price implies an upside of 24% from the current market price.
Key risks to our estimates and target price
The key risk to our estimates remains a slowdown in overall credit momentum which could potentially derail earnings momentum for the bank.
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