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Relatively soft quarter but no structural red flags

Result Highlights

* Asset quality: Gross NPA additions amounted to Rs 53.18bn for the quarter, translating to an annualized slippage ratio of 2.0% in 1QFY24

* Margin picture: NIM at 4.78% was down -12 bps QoQ, with cost of deposits moving up faster than yield on advances

* Asset growth: Advances grew 3.7%/18.1% QoQ/YoY driven sequentially by healthy growth in Retail, Business Banking and SME loans

* Opex control: Total opex grew 6.7%/25.9% QoQ/YoY, Employee expense grew 14.2%/36% QoQ/YoY and other exp. rose 2.0%/19.5% QoQ/YoY

* Fee income: Fee income grew 0.3%/14.1% QoQ/YoY. Fees from retail, rural, business banking and SME customers constituted about 78% of total fees

Our view – Relatively soft quarter but no structural red flags

Slippages were somewhat higher sequentially due to seasonal farm loan slippages and specific credit cost inched up due to lower corporate writebacks: Slippages were higher sequentially due to slippages from the KCC portfolio, which amounted to Rs 6.66bn. Higher KCC slippages is a seasonal phenomenon for the odd quarters. Provisions were Rs 12.9bn, down by -20% QoQ but up 13% YoY. Reported provisions declined since there were no contingent provisions made during the quarter whereas 4Q had seen contingent provisions worth Rs 16bn. Thus, there was a moderate rise in specific provisions on a sequential basis. However, key reasons for the rise were KCC slippages and the writeback on corporate recoveries being lower for the quarter, neither of which are structural.

Management did not provide NIM guidance, per se, but stated that cost of deposits would continue to rise for the next 2 quarters: Cost of deposits moved up 33 bps QoQ to 4.31%. This was despite retail deposit rates having stabilized and wholesale deposits rates having declined. Retail term deposits rates have, in fact, stayed stable for the last 6 months or so. The rise in cost of deposits is due to the rapid pace of deposit growth where new higher-cost deposits now occupy a large proportion of the overall deposits book

Sequential growth in opex outpaced balance sheet and income growth but this was not entirely structural: Staff cost was driven by annual increment and employee addition. The employee count is up ~27650 over the past 12 months. Non-employee expenses were driven by the retail business and tech expenses. 174 branches were added during the quarter, taking the branch count to 6074.

We maintain ‘Buy’ rating on ICICI with a revised price target of Rs 1240: We value the standalone bank at 2.8x FY25 P/BV for an FY24E/25E/26E RoE profile of 15.8%/16.0%/16.3%. We assign a value of Rs 179 per share to the subsidiaries, on SOTP.

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