Prabhudas Lilladher maintains a BUY call on ICICI Bank (NSE: ICICIB) with a revised target price of Rs 1,640. ICICI Bank’s recent performance underscores its position as an industry leader, showing robust profitability and asset quality, with lower operating expenses and provisions relative to peers. With core PAT exceeding expectations and deposit growth above sector averages, ICICI Bank demonstrates resilience even in a challenging economic environment. This comprehensive management of cost and quality has led to a re-rating, as ICICI outpaces competitors on metrics such as return on assets (RoA) and loan growth.

Core Financial Performance Highlights

Profitability and Asset Quality: ICICI Bank reported a strong quarter with core profit after tax (PAT) exceeding expectations due to improved fee income and controlled operating expenses. Return on Assets (RoA): The bank’s RoA, a critical profitability metric, stands at a sector-leading 2.1%, highlighting efficient use of assets to generate earnings. Cost Control: Operating expenses were 4.3% below projections, driven by reductions in both staffing and other operational costs. This proactive cost management approach has contributed significantly to profitability.

Balance Sheet Strength and Deposit Growth

Superior Deposit Growth: ICICI’s deposits grew by 5.0% quarter-on-quarter (QoQ), outperforming the banking sector average of 3%. The current and savings account (CASA) ratio increased by 4.3% QoQ, further stabilizing the bank’s funding base. Loan Portfolio Composition: Domestic loan growth was strong at 4.4% QoQ, led by corporate and business banking (BuB) segments, which grew by 4.9% and 10.0% QoQ, respectively. Retail and rural segments also reported growth, though at a slower pace due to tightened credit filters. Asset Quality Improvement: Gross non-performing assets (GNPA) declined by 18 basis points (bps) to 1.97%, reflecting a stable asset quality profile despite broader economic pressures.

Segmental Loan Performance and Credit Cost

Growth in Core Lending Segments: The bank's lending was bolstered by corporate and BuB growth, counterbalancing slower retail growth due to cautious unsecured disbursals. ICICI has shown prudent risk management, resulting in lower provisioning needs compared to industry peers. Controlled Delinquencies in Unsecured Loans: Despite stress in the broader unsecured loan market, ICICI’s portfolio quality has been well-maintained, benefiting from stricter underwriting standards and optimized sourcing costs. Credit Cost Management: The bank expects credit costs to remain between 40-50 bps over FY24-27, a favorable comparison with the sector average of 50-65 bps.

Margins and Operating Efficiency

Narrowed Net Interest Margin (NIM): NIM slightly contracted to 4.55% due to loan growth in lower-yielding corporate and BuB segments. However, ongoing efforts to optimize operating costs have mitigated this margin pressure. Efficiency in Operating Expenses: Operating expenses grew modestly due to effective cost control, offsetting softer loan yields. ICICI Bank anticipates increased spending in H2 FY25 for technology and branch expansion aligned with the festive season. Strategic Margin Management: Although rate cuts may temporarily impact margins, ICICI’s strategy focuses on maintaining stability through controlled growth in higher-yield segments and focused cost management.

Future Growth Prospects and Valuation

Growth Drivers: ICICI Bank’s portfolio is well-diversified, with promising growth prospects in corporate lending, BuB, and select retail segments. The focus on asset quality and efficient capital allocation should support sustained RoA of 2.1% and RoAE near 17% over the next two years. Valuation and Target Price: Prabhudas Lilladher has adjusted its target price to Rs 1,640, valuing ICICI Bank at 3.0x the adjusted book value for September 2026, based on strong fundamentals and sector-beating profitability. Positive Outlook: With consistent performance across key metrics, ICICI Bank is well-positioned for a re-rating, supported by its effective cost and credit risk management strategy.

Conclusion and Investment Recommendation

ICICI Bank’s sound financial health, efficient cost structure, and superior asset quality underscore its investment appeal. Its ability to balance growth with prudent risk management positions it as a stable choice within the Indian banking landscape. Given the strong quarterly performance and favorable projections, Prabhudas Lilladher reaffirms a BUY rating with a target price of Rs 1,640.

Disclaimer

This report is for informational purposes only and should not be construed as investment advice. Investors should perform their own due diligence or consult a financial advisor before making investment decisions, as market conditions can impact outcomes.