Analyst Corner: Reiterate ‘buy’ on ICICI Bank with target price of Rs 650

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Published: January 28, 2020 12:39:11 AM

We expect the operating performance to remain healthy, while high PCR and limited exposure to stress names will keep credit cost under control.

We expect the operating performance to remain healthy, while high PCR and limited exposure to stress names will keep credit cost under control.

Buoyed by a strong performance across metrics, ICICIBC reported its highest-ever quarterly profit (supported by Essar resolution) in 3QFY20. Loan growth in chosen business segments (retail, business banking and SME) remained buoyant, while deposits growth moderated in the quarter. Slippages adjusted for the two corporate accounts were on track, while retail slippages rose due to seasonal weakness in agri segment. PAT rose 158% y-o-y to Rs 4,150 crore, led by strong NII and lower provisions. NII grew 24% y-o-y, led by ~13% y-o-y loan growth and 13 bp q-o-q margin expansion. Core PPoP was up 24% y-o-y.

We expect the operating performance to remain healthy, while high PCR and limited exposure to stress names will keep credit cost under control. While its retail portfolio has been growing well, growth in business banking and SME is accelerating strongly and will further propel overall loan growth. Reiterate ‘buy’ with SOTP-based TP of Rs 650 (2.6x Sept 2021E ABV).

ICICIBC has delivered a strong operating performance and is showing healthy signs of earnings normalisation. It is progressing well in its endeavour to strengthen its balance sheet with a strong focus on core PPoP. While its retail portfolio has been growing well, growth in business banking and SME is accelerating strongly and will further propel overall loan growth.

We believe the bank is well placed in a challenging environment with its limited exposure to the newly surfaced stressed names and one of the highest coverage in the banking sector. We, thus, estimate RoA/RoE at 1.7%/16.8% in FY22.

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