IGI Logo

Raising the bar!

Robust margin performance; credit cost undershoots sharply

ICICIBC reported an all-round improvement in operating performance, with core PPOP up 21% YoY (excluding dividends), margin improving by 4bp QoQ to 4%, and robust asset quality driving a sharp decline in credit cost, even as the bank increased its contingent provision buffer by INR10.25b. The bank reported a RoA/RoE of 2.1%/17% in 4QFY22.

Business growth continues to gain traction, with a jump of 17% YoY and 6% QoQ, led by Retail, SME, and Business Banking. RoE crossed the 15% mark in 3Q and 4QFY22 saw a further rise (~170bp). While the stock has done well on a relative basis, current valuations leave ample scope for a re-rating. The stock is well-positioned to undergo a swift re-rating over FY23, generating strong returns for the investors, as ICICIBC continues with its journey to deliver solid return ratios and growth.

We expect the bank to deliver a RoA/RoE of 1.9%/16.3% in FY24. ICICIBC remains our top pick in the sector.

Robust all round performance; core PPOP grew 21% YoY (excluding dividend income)

PAT rose 9% above our estimate to INR70.2b (+59% YoY), aided by healthy NII growth, strong fee income, and controlled provisions. It reported an annualized RoA/RoE of 2.1%/17.1% in 4QFY22.  NII growth stood at 21% YoY, aided by 4bp QoQ NIM expansion to 4% and healthy loan growth.

Other income rose 15% YoY to INR47.4b, but fell QoQ by 5%. Fee income grew 14% YoY to INR43.7b. Retail, SME, and Business Banking contributed 77% to total fees. The bank reported treasury gains of INR1.29b (INR0.88b in 3QFY22). The sequential decline in other income was due to lower dividend income from its subsidiaries.

PPOP rose 21% YoY, while core PPOP grew 19% (21% excluding dividend income). NII/core PPOP/PAT shot up 22%/22%/44% YoY in FY22.

On the business front, advances grew 17% YoY and 6% QoQ, led by a 17%/20% YoY growth in Domestic/Retail loans (excluding Agri). Among segments – Credit Card spends rose 1.8x YoY, led by higher activation levels and strong traction in the co-branded card with Amazon. The Business Banking/SME portfolio rose 43%/34% YoY. The Corporate book grew 9% YoY, led by disbursements to higher-rated entities. Within Retail, growth in Mortgages was consistent at 20% YoY. The Unsecured portfolio saw a strong traction and posted healthy growth with Personal loans/Credit Card growing 27%/45% YoY and 10% QoQ each.

On the liability front, deposits grew 14% YoY and 5% QoQ, led by CASA growth of 20% YoY. Average CASA mix improved by 30bp QoQ to 45.2%.

Fresh slippages saw a marginal rise of 5% QoQ to INR42b (2.3% annualized; INR40.2b in 3QFY22), with Retail and Business Banking contributing 89% of total slippages. Net slippages improved, led by higher recoveries.

Net NPA fell 5% QoQ to INR69.6b. GNPA/NNPA ratio contracted by 53bp/9bp QoQ to 3.6%/0.76%. PCR ratio was broadly stable ~79%.

Provisions (excluding contingent) declined sequentially to INR0.4b (INR20.1b in 3QFY22), led by strong recoveries and resolution of a Power/Construction account. Additional contingent provision of INR10.25b took total contingent provisions to INR74.5b (90bp of loans).

Highlights from the management commentary

The bank will continue to leverage its technological capabilities to drive growth, which will help it gain market share across all business segments.

The bank saw a significant increase in the value and volume of financial transactions on InstaBIZ for SME and Business Banking.

RBI master guidelines on credit and debit cards should not have any impact. Its co-branded cards with Amazon should remain unaffected by the RBI move.

Around 47%/7% of loans are linked to the repo rate/other benchmarks.

ICICIBC remains among our top Buys in the sector

ICICIBC reported a robust operating performance in 4QFY22, led by a combination of impressive core PPOP performance and controlled provisions, underpinned by pristine asset quality. A stable mix of a high-yielding portfolio (Retail/Business Banking) and a low-cost liability franchise is fueling steady NII growth. The bank is seeing a strong recovery in business trends across key segments such as Retail, SME, and Business Banking. Fresh slippages saw a marginal rise in 4QFY22. However, net slippages improved sequentially, leading to continued moderation in credit cost. PCR remains one of the best in the industry ~79%. The additional COVID-19 provision buffer (90bp of loans) renders comfort. We expect the bank to deliver a RoA/RoE of 1.9%/16.3% in FY24. We maintain our Buy rating with a SoTP-based TP of INR1,050 per share (based on 2.8x FY24E ABV for the core bank), implying a potential upside of 40%. ICICIBC remains our top pick in the sector.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer