Buy ICICI Bank Ltd For Target Rs.1,100 - Motilal Oswal financial services
Another enthralling quarter
Robust business growth; prudently scales up contingent provisions
* ICICIBC reported another quarter of magical performance, with the bank reporting in line earnings (RoA of 2.1%), despite making contingent provisions of INR15b. Core PPOP grew 24% YoY. NIM expanded by 30bp QoQ to 4.31%.
* Asset quality continues to demonstrate exemplary performance as the bank further improved its GNPA/NNPA ratio, while PCR improved to 81%. The bank now has a total contingency buffer of INR100b
* Business growth remains strong and was broad-based, with an increase of 23% YoY and 5% QoQ, led by both the Retail and Corporate segment. The bank continues to invest in technology and digital initiatives to further boost the pace and sustain the momentum.
* With a floating rate book of 70%, the bank is well-placed in a rising interest rate environment. We expect ICICIBC to deliver a FY24E RoA/RoE of 2.1%/17.2%. ICICIBC remains our top pick in the sector.
Margin expands by 30bp QoQ to 4.31%; deposits grew 4% QoQ
* PAT grew 37% YoY (in line) to INR75.6b in 2QFY23, aided by healthy NII growth, strong fee income, and controlled provisions. The bank reported a 2QFY23 annualized RoA/RoE of 2.1%/16.6%.
* NII grew 26% YoY (4% beat), aided by a 30bp QoQ expansion in margin to 4.31% and healthy (23% YoY) loan growth.
* Other income rose 5% YoY and 8% QoQ to INR44.8b, impacted by a treasury loss of INR850m (a gain of INR360m in 1QFY23). Fee income grew a healthy 18% YoY. A lower duration AFS portfolio helped minimize the MTM impact in 2QFY23.
* OPEX rose 24% YoY (5% miss) as the bank continues to invest in its employees and in technology initiatives to build its franchise. PPOP rose 18% YoY and core PPOP grew at 24% YoY (in line).
* On the business front, advances grew 23% YoY and 5% QoQ, led by 24%/25% YoY growth in Domestic/Retail loans. Growth was led by Home loans, Credit Cards, and Personal loans. The SME book grew 27% YoY. The Corporate book saw a healthy pick-up, up 22% YoY and 5% QoQ.
* On the liability front, deposits grew 12% YoY and 4% QoQ and CASA deposits grew 13% YoY and 3% QoQ. Average CASA mix declined by 80bp QoQ to 45%.
* Fresh slippages moderated to INR43.7b (2.3% annualized). However, higher recoveries restricted increase in net slippages to INR6.1b.
* GNPA/NNPA ratio improved by 22bp/9bp QoQ to 3.2%/0.6%, while PCR improved to ~81%. Restructuring book moderated to INR67.1b (0.7% of loans). The bank created an additional contingent provision of INR15b, taking the contingency buffer to INR100b (1.1% of loans).
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