ICICI- Ready for the tough times, recent correction makes it an attractive Buy


 ICICI Bank has re-emerged as a strong retail bank over the years, with a clear focus on
profitability vs. growth, which coupled with its strong liability franchise, PCR, capital and
stable management, makes it the best fit for the current tough times.
 Although Yes Bank’s failure has been averted, weak economic environment, along with
Covid-19 scare, could further hurt systemic growth/asset quality. However, ICICI remains
well-placed to manage these shocks and continue on its RoE improvement trajectory.
 Corporate asset-quality stress may remain elevated, while select segments in retail too
are showing signs of stress. However, higher PCR and improving operating profitability
should help absorb these shocks. The bank has guided for 110-130bps LLP in FY21E.
 ICICI’s strong delivery on RoEs (15-16% over FY21-FY22E) from sub-10%, coupled with
its re-emergence as a strong retail-cum-digital bank and the recent correction, makes it an
attractive Buy. We trim TP to Rs600 from Rs650, lowering earnings estimates and P/ABV
given the risk-off environment.
This report is solely produced by Emkay Global.
Immediate focus on business continuity plan; retail focus remains un-wavered: Amid
the Covid-19 scare risking daily life, the immediate focus is on business continuity, customer
convenience and normalizing business as the risk recedes. ICICI Bank’s strong digital
platform should help limit the impact in such events. It believes systemic retail growth in some segments may remain disrupted and revival could be delayed, namely CV/mortgages, but the bank’s strong liquidity position/franchisee and recent co-lending tie-up should help it gain market share without compromising on profitability. Growth in PL/Cards remains strong,
largely sourced from captive customers, ensuring better quality and customer level RoE.
Healthy liability profile: Learning from its post-Lehman crisis debacle and even witnessing
run on deposits, it has created a strong liability franchise, delivering best CASA ratio among
large players (~47%). The bank believes that any rate cut by the RBI may put pricing pressure,but better CoF, improving LDR, higher retail orientation and moderating pace of NPA
formation should help protect its NIMs.
Better operating profitability, PCR to help absorb shocks: The bank’s long de-bulking
strategy has led to limited exposure to corporates recently under stress, in-turn leading to
moderate NPA formation. It has also adopted the policy of proactive stress
recognition/provisioning (for e.g., 100% PCR on Karvy) given its much better shock absorption capacity, led by strong operating profitability, leading to industry-best PCR (76%). Retail NPAs are on rise again, but the bank remains unperturbed as its risk-adjusted returns are far higher unlike in the past.
Maintain top Buy: We have trimmed our loan growth/earnings estimates by 1-2% and TP to
Rs600 from Rs650, lowering P/ABV on core bank to 2.2x from 2.5x given the risk-off
environment. ICICI Bank adopted ‘One Bank One RoE’ policy with a focus on risk-calibrated
profitable growth, coupled with digital edge, which should help deliver strong RoEs (15-16%
over FY21/FY22E) from sub-10%. Amid current market rout, revamped and stable ICICI offers a great investment opportunity from a long-term perspective. Maintain strong Buy/OW in EAP


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