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‘Strong core performance’

ICICI Bank (ICICIB IN) reported stellar performance for Q1FY23 with robust profitability, pick-up in advances growth momentum and improvement in the assets quality. ICICIB IN reported 49.6% YoY growth in PAT of Rs69 bn (v/s CIER est. of Rs 64 bn) on strong core operating profit and sharp decline in the provisioning. Sustaining above 20% YoY growth for the last four quarters, NII rose by 20.8% YoY to Rs132 bn, which came in line with our estimate of Rs134 bn. Sequentially, NII rose by 4.8% despite 19 bps QoQ decline in YoA to 8.1% supported by contained CoF. NIM modestly improved by 1bps QoQ to 4.01% in Q1FY23. Management linked decline in yield to seasonal trend and stated that the repricing of assets to start reflecting on yield in the next quarters. Fee income grew by 32.0% YoY but modestly declined -2.8% on QoQ basis. Treasury income declined to Rs0.36 bn v/s Rs2.9 bn on year ago quarter, but bank managed to escape MTM loss due to increase in yield by maintaining low duration trading bond portfolio.

* GNPA declines led by higher R&U: Gross slippage was Rs58 bn (higher than our estimates of Rs46 bn). Slippages rate during quarter rose to 0.7% in Q1FY23 from 0.5% in Q4FY22. Adjusting with seasonal slippages from the kisan credit card portfolio of Rs7.6 bn, slippages at 0.6% largely remains at the comfortable level. Rs50.5 bn or 86% of the total slippages came from the retail, rural and BB book. Corporate & SME slippages remained contained at Rs7.9 bn indicating resilient corporate book. R&U trend remained strong rising by 50.1% YoY to Rs55 bn. After R&U and write-off, GNPA reduced by 19 bps QoQ to 3.41%.

* Low stress book; high standard provisioning buffer: Stress eased significantly in the book with restructuring book (RA) reduced to Rs74 bn (from Rs83 bn in Q4FY22). Adjusting with provisions of Rs23 bn, net RA improved to 0.6% in Q1FY23 (from 0.7% in Q4FY23). BB & below rated book reduced to Rs82 bn (0.9% of loans in Q1FY23 v/s 1.3% in Q4FY22) due to upgrade in few accounts in the power & construction sector and reduction in exposure to borrowers in the telecom sector. Despite decline in stress, bank made contingent provisions of Rs10.5 bn during quarter to keep BS resilient in the wake of weak macro scenario. ICICIB IN holds standard provisions of Rs188 bn which comprises 2.1% of the loans (including contingent provisions of Rs85 bn) indicating a strong provisioning buffer to tackle the assets quality uncertainties.

View and Valuation: With the decline in stress book, strong focus on R&U and higher standard provisioning buffer, credit cost is likely to remain low which along with strong core operating performance to continue to boost the bank’s profitability. We have reduced our provisioning estimates over the next two fiscals. RoE is expected to increase to 15.8% in FY24E from 14.7% in FY22.

We maintain BUY rating on ICICIB IN and raised target price to Rs1,025 (from Rs950). We value the core banking business at 2.8x FY24E P/Adjusted Book Value arriving at Rs855 per share (raised valuation multiple to 2.8xP/ABV from earlier 2.6x on expected expansion in RoE) and its subsidiaries are valued at Rs170 per share.

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