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‘Stress under control; growth to pick up’

Buy ICICI Bank Ltd For Target Rs.675

Profitability trend continued to remain strong on the back of healthy NII growth and normalizing credit cost because of sufficient buffer of non-NPA provisions. Contained OPEX and improving fee income growth as business activity regains momentum post lockdown also adding to profitability.

ICICI Bank Ltd. (ICICIB) reported NII growth at 16% YoY in Q3FY21 supported by -6.7% YoY decline in interest cost, interest income though rose by modest 3.5% YoY. NIM improved 10 bps sequentially to 3.67% supported by decline in interest cost as CoF reduced by 24bps QoQ to 4.1%. Net profit at Rs49.4 bn in Q3FY21 came higher than our estimate driven by strong core performance.

Proforma slippages was Rs83 bn (1.2% of loans) in Q3FY21 out which 90% came from the retail portfolio. Proforma GNPA/NNPA rose by 6/14 bps QoQ to 5.42%/1.26% which translates proforma PCR to 77%. During the quarter, ICICIB made Rs30 bn of provisions for proforma NPAs and utilised Rs18 bn from Covid buffer provisions. Though, the bank maintained a healthy standard provisioning buffer at 1.45% of loans. ICICIB received restructuring proposal to the tune of 0.4% of loans (Rs25.5 bn) with 77% came from corporate & SME (all from BB & below) and 33% from retail. While the bank holds 15% PCR against restructured loans. BB & below rated book rose to Rs180.6 bn in Q3FY21 (2.6% of loans v/s 2.5% in Q2FY21) mainly due to Rs22.4 bn of downgrade of assets to this category. Collection efficiency has improved across segments with retail overdue <90 dpd reducing to 1.5% v/s 4% in previous quarter.

Restructuring at 0.4% of loans remains lower while the reduction in overdue loans across segments indicates stress is under control. Higher standard provisioning buffer at 1.45% of loans also provides comfort and will immune the profitability. Moreover, credit growth picked up to 10% YoY during quarter with restoration of corporate loan growth.

We maintain ‘Buy’ rating to ICICIB with revised target price of Rs675 (valuing standalone business at Rs545 derived at P/ABV at 2.3xFY23E ABV and adding subsidiaries valuation of Rs130).

NII growth remains healthy; low OPEX and normalizing credit cost also support profitability

ICICIB reported 19.1% YoY and 16.2% QoQ growth in PAT to Rs49.4 bn in Q3FY21 on the back of strong NII growth, low OPEX and provisioning cost. NII grew by 16% YoY mainly driven by -6.7% YoY decline in the interest cost. NIM also expanded by 10 bps sequentially to 3.67% as sharp decline in CoF provided boost to NII. Other income grew by 2.5% YoY and fee income by 0.1% YoY during the quarter. OPEX grew by modest pace at 3.7% YoY thereby with strong income growth, C/I remained contained below 40% (39.6% in Q3FY21). P&C declined by -8.5% QoQ thus supporting the bottom line.

Advances growth picks up; corporatesloans record expansion

Advances grew by 10% YoY in Q3FY21 after single digit growth in the past two quarters. Mgmt planned to boost growth as collection efficiency improved to 98% better than pre-Covid and stress remained under control. Retail advances grew by 15.4% YoY, SME at 24.6% while corporate loan after many quarters grew at 6.5% driven by disbursement to better rates PSUs and large corporates. Within retail segment, business banking grew by 39.4% YoY, rural loans at 24.6% YoY, home loans at 15% YoY and personal loans at 10.4% YoY. Home loans at 50% share continue to consist large portion of retail segment. Deposits grew by 22.1% YoY while within this term deposits grew by 26.1% YoY and CASA at 17.5% YoY. The bank is well capitalized with CET I at 15.3% as of Q3FY21.

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