Buy ICICI Bank ; target of Rs 425: Dolat Capital

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26 Aug, 2025 12:21

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Dolat Capital's research report on ICICI Bank

Q3FY18 PAT at ` 16.5bn down 32% YoY & 20% QoQ. NII mere 6% up YoY. NIMs stood stable YoY; down QoQ to 3.1%. Other income stood down 20% YoY & 39% QoQ; on the back of decline in treasury gains and not so encouraging core income; fee income grew mere 6% YoY led by healthy retail fees. Provisions grew 32% YoY; while provisions were down QoQ due to base effect as the bank made upfront provision in Q2 for all the 12 IBC exposures, Q3FY18 saw further additional provision of ` 36.6bn; another 6 bn to come through in Q4FY18. Advances grew 11% YoY backed by strong retail growth of 22% YoY. CASA ratio stood at 50.4% in Q3FY18 vs 49.9% in Q3FY17. Asset quality remains almost stable QoQ; GNPA stood at 7.8% in Q3FY18 vs 7.20% in Q3FY17. PCR has improved to 48.3% in Q3FY18 from 45.7% in Q2FY18. Slippages stood down at ` 44bn from ` 47 bn (Q2FY18), ` 36bn of which emerged from corporate side. As at end of Dec’17, gross stress asset ratio stood at 13%.

Outlook

ICICI Bank Q3FY18 earnings disappointed with a huge PAT miss with a blow from weak revenue profile (advances return stood flattish; in turn depressing NII) and poor other income show despite stake sale gains proving an operationally weak quarter (PPoP down 8% YoY). Had it not been for tax write-backs, bottom-line would have further decelerated. Moreover, while optically GNPAs have sequentially stood flattish at 7.8%, slippages moderately declined to ` 43.8bn in Q3FY18 (in-line) vs `46.7bn in Q2FY18, the performance on recoveries (` 11 bn -Q3 vs ` 10 bn -Q2) and shrinkage in drill down list (` 191 bn) do not stand on expected lines. Said that, negligible divergence (compared to peers) that stands already captured into the Q3FY18 NPLs, reduction in volatility in slippages and normalized capital consumption each quarter brings huge respite. Against this backdrop, we reiterate BUY recommendation valuing the core bank at 2.1x P/ABV FY19E arriving at TP of ` 425 (subsidiaries valued at ` 121 per share). While elevated provisions and lower other income prompt us to prune down FY18 earnings estimate, FY19-20E stands upbeat. While RoEs continue to remain depressed below 12% (FY20E), we foresee limited upside above our target multiple.

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