Buy ICICI Bank; target of Rs 1375: Emkay Global Financial

Emkay Global Financial's research report on ICICI Bank

Despite slightly higher-than-expected margin contraction by 25bps QoQ, ICICIB reported 5% earnings beat at Rs103bn/up 36% YoY (2.4% RoA), led by systembeating credit growth @18% YoY and lower provisions, as the bank has paused shoring up its already-high contingent buffer (1.2% of loans). We expect margin normalization to continue for most banks and so also for ICICIB mainly due to some moderation in unsecured loan growth amid rising stress/RBI’s rebuke and continued funding cost catch-up. However, the bank’s strong provisioning buffer should keep LLP lower and, thus, support its superior RoA of 2.1-2.4%/RoE of 17-19% over FY24- 26E. We believe the recent stock under-performance has been mainly due to the senior mgmt.’s attrition/rejig dwarfing its otherwise strong financial performance.

Outlook

However, we take comfort from the strong leadership back-up at ICICIB and are hopeful the bank remains adaptive to limit the unwarranted attrition, as it aspires to build up into a “sustainable & profitable bank” in the long run. We retain BUY with a revised TP of Rs1,375 (earlier Rs1,330), rolling fwd. the core bank’s valuation at 3x Sep-25E ABV (premium over HDFCB) and subsidiaries at Rs170/share.