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A few niggles do not change thesis

Result Highlights

* Asset quality: Gross NPA additions amounted to Rs 57.23bn for the quarter, translating to an annualized slippage ratio of 2.3% in 3QFY23

* Margin picture: NIM at 4.65% was up 34 bps QoQ, due to higher loan to deposit ratio and yield on advances moving up faster than cost of deposits ? Asset growth: Advances grew 3.8%/19.7% QoQ/YoY driven sequentially by healthy growth in Corporate, Retail, Business Banking and SME loans

* Opex control: Total opex grew 0.7%/16.1% QoQ/YoY, Employee expense grew 1.1%/17.6% QoQ/YoY and other exp. rose 0.4%/15.4% QoQ/YoY

* Fee income: Fee income de-grew/grew -0.7%/3.7% QoQ/YoY. Fees from retail, rural, business banking and SME customers constituted about 78% of total fees

Our view – A few niggles do not change thesis

Gross slippage ratio was somewhat elevated, while ICICI chose to make some contingent standard asset provisions: Non-wholesale slippages amounted to Rs 41.59bn whereas corporate and SME slippages amounted to Rs 15.64bn. Slippages from the KCC book alone amounted to Rs 6.72bn, which tend to be seasonally higher in the first and third quarters. Provisions were Rs 22.57bn, up by 37.3% QoQ and 12.5% YoY. Provisions for the quarter contained contingent provisions worth Rs 15bn. There was also an impact of Rs 11.96bn on net provisions due to an adoption of more conservative provisioning norms. There were recoveries of older NPAs, which has led to significant provision write-backs and, in fact, excluding the impact of contingent provisions and change in norms, there was a net write-back of Rs 4.4bn.

Cost of deposits has risen 10 bps QoQ to 3.65%, which is a relatively controlled rise, given the environment: Increase in deposit rates has been relatively controlled, earlier, as ICICI has been sitting on excess liquidity.Management stated that the repo rate hike made in December will play out in 4Q.

Sequential growth of 3.8% was the slowest since 2QFY22, impacted by sluggish CV/CE loans and de-growth in ‘Other’ loans: CV/CE loans grew relatively slower at 1.1% QoQ whereas Other loans de-grew -11.3% QoQ. Other loans comprise Dealer funding loans, Loans against shares and others. Retail loans (ex. Business banking), Business Banking, SME loans and Corporate loans grew 4.4%, 5.2%, 8.3% and 4.7% QoQ, respectively.

We maintain ‘Buy’ rating on ICICI with a revised price target of Rs 1180: We value the standalone bank at 3.0x FY24 P/BV for an FY23E/24E/25E RoE profile of 16.5/16.5%/17.0%. We assign a value of Rs 157 per share to the subsidiaries, on SOTP.

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