ICICI Bank rated buy by Jefferies

While core PPOP was largely in line (flat opex offset weak revenues), lower trading profit led to sharply lower bottom line. Net stressed assets declined to 8.7% of net customer assets. We hope top line growth revives with resolutions/ lower credit costs aiding RoA improvement. Retain Buy with PT of Rs 410.

Core PPOP: NIM at 3.14% was marginally better while fee income disappointed — management guides for double-digit growth on full year basis. OpEx didn’t grow — employee expense down benefiting from lower retiral-obligation at higher discount rates. Core PPOP was up 7.9% y-o-y. For continued re-rating, core revenue trajectory has to get better, for which we think, capex revival will be key.

Balance sheet: Loans grew 10.5%, although international book shrank 15%. Retail was up 22% — PL, cards, business banking were key contributors. SME too was up 18%. Average CASA ratio improved to 45.7% (50 bps q-o-q).

Asset quality: Total net stressed assets declined further sequentially to 8.7% versus 9.3% of net customer assets. PCR improved to 48.3% versus 45.8% q-o-q. Drilldown list is down to 1.9% of loans. 37% of GNPA has been referred to NCLT which are classified as nonperforming — recovery could boost book value, which is built in our lower credit cost assumption going forward. ICICI has to make good on provisions in the RBI list #2 accounts referred under IBC in Q4, but a few resolutions from list #1 may provide a cushion and keep credit costs under check.

Change in estimates: We lower EPS estimates by 6/2.5/1.2% factoring lower trading income offset by better NIM, revival in fee income & opex control along with lower credit costs. RoE trajectory should improve gradually to 12-14%. Our FY17-20E EPS CAGR is 19%, and adj. BV is 15%.

ICICI Bank