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Another strong quarter; outperformance to sustain

ICICI bank reported another strong quarter with a) robust growth performance (loan growth of +21% YoY), b) steady operational performance (+19% Core PPOP growth) and c) improving asset quality (GNPL and restructured pool down to 3.6% and 0.8% resp). The quality of earnings continues to be on strong for ICICI Bank – NIMs in guided range (4.01%, +4bps QoQ), strong core fee income growth (+25% YoY) and low credit cost (56bps, despite making INR 10.5bn contingent provisions). Further, unlike large peer banks, ICICI was able to report MTM profit on investment book (INR 360mn). Loan growth at +21% YoY was led by mortgages, business banking and unsecured retail. ICICI Bank has cemented its stalwart position with a a) highly efficient large liability franchise, b) strong capital ratios, c) strong PCR and steady asset quality and d) best-in class return ratios. ICICIBC provides an opportunity to benefit from growth in a profitable retail franchise while providing significant re-rating upside from the corporate growth uptick. We see ICICI Bank delivering strong compounding returns with valuations set to re-rate higher. ICICI Bank continues to be our top pick in the sector. Maintain BUY with SoTP-based target price of INR 1,000 (values the core business at 2.75 FY24E P/BV).

* Retail-led growth; steady core performance: ICICIBC’s witnessed robust growth in loans (+4.6% QoQ, +21.3% YoY) led by strong growth in retail (+23.7% YoY) driven by strong traction in unsecured retail (c.12% and 9%% QoQ) and mortgages (+4% QoQ). SME and Business banking also witnessed robust growth of 32% YoY and 45% YoY resp. while domestic corporate loans growth improved to 14.4% YoY. While the deposits de-grew sequentially (-1.3% QoQ, +13.4% YoY), management indicated that average CA and SA balances witnessed healthy sequential growth of 2.9% and 4.4% resp. Thus, average CASA ration inched up further to 45.8% (+60bps QoQ). NIMs held up at 4.01% (+1bps QoQ). While opex was elevated (+25% YoY, +7% QoQ), healthy core revenues grew +21.8% YoY (core fees up 25% YoY) resulted in steady core PPOP growth of +19% YoY. Opex was elevated due to: a) INR 1.3bn impact of fair valuation of ESOPs and b) higher other opex driven by retail businesses and technology related expenses.

* Steady asset quality; high provision buffers comforting: While slippages were elevated at INR 58.25bn (2.85% annualised), GNPL/NNPLs improved to 3.6%/0.7% (-23bps/-7bps QoQ) aided by healthy recoveries and upgradations. Credit costs were low at 56bps annualised despite making INR 10.5bn contingent provisions. Restructuring quantum declined to 0.8% of loans (vs 1.0% in 4Q22) and bank holds c.31% provision on this book. While the elevated slippages lead to a slight disappointment, ICICIBC’s provision buffer continues to be robust at INR 85bn (1.0% of loans) provide comfort. We expect ICICI bank reverting to near normal credit costs of c.0.7% for FY23-24E.

* Valuation and view: We believe ICICI Bank firmly remains on a path to deliver 2.0%/17.0% avg RoA/avg RoE over FY23-24E with stable asset quality and industryleading growth. ICICI Bank has outperformed Bank NIFTY by +5%/+2%/+16% over the last 3/6/12 months and we expect this outperformance to continue. Maintain BUY with a target price of INR 1,000 valuing the core banking business at 2.75x FY24E BVPS.

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