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Investment thesis stays intact, Reiterate as key top pick

Result Highlights

* Asset quality: Gross NPA additions amounted to Rs 40.18bn for the quarter, translating to an annualized slippage ratio of 2.0% in 3QFY22

* Margin picture: NIM at 3.96% was down 4 bps QoQ, as decline in yield on advances outpaced the decline in cost of deposits

* Asset growth: Advances grew 6.4%/16.4% QoQ/YoY driven by healthy growth across segments

* Opex control: Total opex rose 7.6%/22.4% QoQ/YoY, employee expenses rose 4.2%/27.4% QoQ/YoY and other expenses rose 9.6%/19.9% QoQ/YoY

* Fee income: Fee income rose 12.6%/19.2% QoQ/YoY driven by healthy sequential traction across fee income streams, including credit cards

Our view – Investment thesis stays intact, Reiterate as key top pick

Unlike HDFCB, ICICI did not have anything negative to report from a perspective of fees from credit cards and payments business: Total fee income grew 19.2% YoY in 3QFY22. Fee income growth was broad-based and healthy across segments such as retail assets, credit card spends and payments and wholesale banking. Fee income from retail, business banking and SME grew 16.3% YoY and constituted 76% of overall fees in 3QFY22. Credit card spends were up 27% QoQ. There were 3 key factors behind the ramp up of credit card spends. Firstly, the bank is directing its spends to important aspects such as card activation and rewards. Secondly, the Amazon Pay co-branded credit card has been good for the bank due to its low risk, high spends, good cross sell and stickiness. Lastly, the commercial cards portfolio is being built up.

While there was marginal NIM compression on sequential basis, we do not see any structural headwinds in this regard but rather a constructive backdrop: We acknowledge loan spread has compressed sequentially as yield on advances declined 15 bps QoQ to 8.19%, outpacing the 6 bps decline in cost of deposits to 3.47%. We regard the strong growth in high-yielding segments such as personal loans, credit card dues and business banking at 8.3%, 14.9% and 8.8% QoQ as largely structural in nature

We maintain ‘Buy’ rating on ICICI with a revised price target of Rs 1044: We value the standalone bank at 3.1x FY23 P/BV for an FY22E/23E/24E RoE profile of 14.1/15.7/16.3%. We assign a value of Rs 189 per share to the subsidiaries, on SOTP. We had flagged ICICI as one our top 3 picksin our sector initiation report dated 30th Jun 2021.

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