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A performance second to none

Bank continues to report strong core profitability, at 25% YoY, on the back of robust credit growth, sharp margin uptick and contained opex. That said, although the bank further shored-up the contingent buffer by Rs15bn, which now stands at Rs100bn/1.1% of loans, it still led to a 2% beat on PAT, which came in at Rs75.6bn.

Credit growth was healthy at 23% YoY/5% QoQ, led by strong retail growth of 25% YoY/6% QoQ and continued traction in the SME/BB segment. This, coupled with asset repricing, led to a stout margin uptick of 30bps QoQ to 4.3% (on par with HDFCB’s NIM at 4.3%). Some margin moderation is inevitable, as deposit growth accelerates, but the bank has structural support, given improving share of its unsecured retail book.

We believe ICICIB is far better positioned in the current cycle, with unwavering determination to deliver growth with profitability as well as build strong provision buffer to protect future profitability. Factoring-in the strong core-profitability and incrementally-lower LLP, we expect the bank to deliver historically-high RoA/RoE of 2%/17-18% in FY23-25E.

ICICI Bank remains our top fundamental pick in the banking space, given its enduring superior financial performance, top-management stability and strong capital/provision buffers. We retain BUY with revised TP of Rs1,170/share, now valuing the standalone bank at 2.8x Sep-24E and subsidiaries at Rs202/share.

What we liked: Robust growth/margin delivery, strong PCR at 81% and contingent buffer at 1% of loans, and improving asset quality. What we did not like: Moderate deposit growth, which albeit is set to accelerate led by its solid branch network and rate tweaking.

Margins at all-time high and similar to HDFCB’s: ICICIB reported strong credit growth at 23% YoY/5% QoQ, mainly led by continued traction in the retail and SME/BB segments. Within Retail, mortgages, auto and the unsecured book (incl. PL and cards) maintained the steady growth pace. This, together with asset re-pricing, led to 30bps QoQ growth to 4.3%, similar to HDFCB’s. Some margin moderation is inevitable as deposit growth accelerates, but the bank has structural support, given improving share of its unsecured retail book.

Bank continues to build a strong counter-cyclical buffer: Gross slippages moderated to Rs44bn/2.3% of loans, due to stress moderation in the KCC card portfolio. This along with strong recovery/upgrades led to 22bps reduction in GNPA ratio to 3.2%. The restructured pool declined to Rs67bn/0.7% (vs 0.8% in Q1), for which the bank carries provision cover of 31%. The bank continues to strengthen its balance sheet, as it made an additional contingency provision of Rs15bn in Q2; now, the contingency buffer stands at Rs100bn/1% of loans (the highest among large banks). The FB/NFB exposure rated below BB declined to Rs76bn/0.8% of loans in Q2, from Rs82bn/0.9% of loans in Q1.

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