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  1. Retain buy on ICICI Bank with revised TP of Rs 380

Retain buy on ICICI Bank with revised TP of Rs 380

ICICI bank’s core PPOP was 6%+ below JEFe (higher OpEx) offset by better credit costs. Fresh NPLs came mostly from known stressed assets and there were a few large recoveries which held up NIMs and lowered gross stressed assets.

By: | Published: August 11, 2018 2:26 AM
ICICI Bank, Retain buy, JEFe, PPOP trajectory, operating profit, market Gross NPLs stood at 8.84%, a well expected 100 bps sequential increase. (reuters)

ICICI bank’s core PPOP was 6%+ below JEFe (higher OpEx) offset by better credit costs. Fresh NPLs came mostly from known stressed assets and there were a few large recoveries which held up NIMs and lowered gross stressed assets. From here on, revenue and core PPOP trajectory is key, though a 15% consolidated RoE guidance seems a tad soft. Retain buy with revised target of Rs 380. Gross NPLs stood at 8.84%, a well expected 100 bps sequential increase.

Fresh slippage in the quarter stood at Rs 157.4 billion, but most of it came from already earmarked stressed assets. Consequently, guided watch list came down to Rs 47.3 billion v/s Rs 190.6 billion last quarter. Upgrades & recoveries in the quarter were strong, mainly as a Rs 8.4 billion exposure to a sugar company got upgraded to standard category as its management change condition under SDR was met. The total net stressed assets (net NPA + other stress) declined to 7.3% versus 9.1% of net advances sequentially.

The provision coverage excluding technically written-off accounts remained stable at 48.4% versus 48.3% previous quarter. Loan growth came in at 10.4% y-o-y, domestic book grew 13.3% y-o-y while international book was down 4.7% y-o-y. Within the domestic book, retail continued to grow at a fast pace, up 17.6% y-o-y. CASA ratio stood at 51.7% (150 bps improvement sequentially). Core pre-provision operating profit was down 1.4% y-o-y on account of muted NII growth of 1.0% y-o-y.

NIM for the quarter were at 3.24%, 33 bps lower y-o-y. Core cost to income ratio (ex. treasury income and one-offs) remained elevated at 46.4% versus of 43.3% in Q3. We largely maintain estimates for FY19, up FY20E by 2.4% and introduce FY21E with a FY18-21E CAGR at 46% (lower base). The forecasts pencil in small improvements in NIM and OpEx & normalisation of credit cost to ~ 90 bps over FY20-21E. RoE trajectory should improve gradually to 15% by FY21E.

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