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Yet another stellar quarter

ICICI Bank continues to benefit from interest rate tailwinds with 4QFY23 NIMs hitting elevated levels of 4.9%. PAT grew 30% YoY to INR 91.2bn vs est of INR 89bn, driven by strong NII momentum and continued low credit costs. Loan growth stood at 19% YoY (5% QoQ) and deposit growth while soft on a YoY basis (at 11%) sequentially picked up to 5% QoQ. While NIMs could remain strong in the near-term, we expect moderation as gradual uptick in cost of deposits catches up with the yield improvement (33bps QoQ increase in cost of deposits). Share of unsecured loans in the overall mix now stands at 12.2% (vs 10.2% a year ago). Management continues to focus on its stated strategy of a strong PPOP profile and exuded confidence on asset quality (credit costs stood at 69bps with almost entire provisions being made as contingent provisions). Net slippages for ICICI Bank were negligible (gross slippage 1.8%). Our continued positive bias on ICICI Bank stems from strengths of its PPOP profile and healthy asset quality. Maintain BUY with SoTP-based target price of INR 1,115 (values the core business at 2.7x FY25E P/BV).

* Strong operating performance: Loan growth of +19% YoY was broad based with retail/domestic corporate segments growing at +23%/+21% YoY and +6%/+4% QoQ and management remains optimistic on loan growth momentum going ahead. Within retail the growth was driven by strong traction in unsecured retail (c.9% QoQ). Domestic corporate loans witnessed an inch up to +21% YoY driven by well rated corporates. While the deposits growth was moderate at +11% YoY/ +5% QoQ, it has started to see some signs of improvement. Average CASA ratio stood at 43.6% (vs 44.6% QoQ). NIMs improved 25bps QoQ; though management indicated NIMs have likely peaked out at current levels. Opex was elevated (+27% YoY) due to higher investments in tech and digital infra, ramping up of new branches, increase in business volumes and provision on employee retirals (INR 3.35bn). Management indicated that ICICI bank will continue to invest in new branch infrastructure and the runrate of branch addition is likely to remain similar or may even inch up going ahead. Core PPOP growth was strong at 36% YoY.

* Steady asset quality; provision buffers strengthened: Gross slippages were at INR 43bn (1.8% of loans) which coupled with healthy recoveries and upgradations led to negligible net slippages. GNPLs/NNPL/restructuring pool improved to 3.0%/0.5%/0.4% (-27bps/- 7bps/-7bps QoQ). Credit costs were at 69bps despite making INR 16bn contingency provisions. ICICIBC’s contingent provision buffer now stands at INR 131bn (1.3% of loans) which should insulate the bank from any future credit events (JMFe credit costs of 65bps over FY23-25E).

* Valuations and view: We continue to like management’s consistent focus on risk-adjusted core PPOP, capturing the maximum value in the customer ecosystem while keeping asset quality under check. We maintain our positive stance in light of: i) highly efficient large liability franchise, ii) robust capital ratios, iii) strong PCR and steady asset quality and iv) strong return profile and superior digital prowess. Maintain BUY with SoTP-based target price of INR 1,115 (values the core business at 2.7x FY25E P/BV).

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