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* For Q4FY2023, ICICI Bank has yet again reported healthy earnings beat at Rs91.2bn (our estimate of Rs88bn)/2.3% RoA, led by continued superior margin delivery and contained credit cost. ICICI continues to scale up its contingency buffer (Rs16bn in Q4, taking it to Rs131bn/1.3% of loans) despite no visible asset-quality deterioration and, thus, we believe this seems to be an earnings-normalization strategy.

* Credit growth was healthy at 19% YoY/5% QoQ in Q4FY23, with retail growing at a faster pace. The bank expects growth momentum to remain healthy in FY24E. Deposit growth picked up pace at 11% YoY/5% QoQ, but better LDR coupled with asset re-pricing led to a 25bps qoq NIM expansion to 4.9% (vs. our estimate at 4.65%).

* We expect the bank to deliver the best-ever RoA/RoE of 2.0-2.2%/17-18% over FY24- 26E, led by structurally strong margins and, thus, core profitability, while the contingent buffer will protect P&L from any asset-quality bumps. The recent RBI’s approval to HDFC to increase its stake in the insurance business should takeout stake sale overhang on ICICI Lombard as well.

* ICICI remains our top pick in the banking space, given its superior financial performance, top-management stability/credibility and strong capital/provision buffers. We retain BUY with a TP of Rs1,250/share, valuing the bank at 2.9x Mar-25E and revised subsidiaries’ value at Rs170/share.

* Superior margin delivery in Q4; deposits growth gathers pace: ICICI reported healthy credit growth at 19% YoY/5% QoQ, despite a decline in overseas book (exchange rate impact). Retail growth remained healthy at 23% YoY/6% QoQ, driven by mortgage and unsecured portfolio. SME growth also continued to fire-up at a strong pace, thereby gaining market share. Deposits growth (fueled by retail deposits) is catching up pace (11% YoY/5% QoQ), with CASA ratio improving by 50bps QoQ to 46%. However, the bank continued to benefit from asset-liability repricing lead-lag effect coupled with higher LDR resulting in a sharp 25bps QoQ uptick in NIM to 4.9%. NIM has largely peaked out and there will be some imminent moderation as the funding cost catches up, but it will still continue in the range of 4.2-4.5% for overall FY24.

* NPAs trend down, but the bank continues to ramp-up contingent buffer: Gross slippages were below expectations at Rs43bn/2% of loans, owing to lower slippages from the corporate and SME book as well as KCC book. However, strong recoveries led to a 26bps reduction in GNPA ratio to 2.8%. As per management, net retail slippages have turned positive as recovery from old retail NPA fizzles out, a phenomenon to be seen across banks. The restructured pool declined to Rs45bn/0.4% (vs. Rs50bn/0.5%), while the bank carries healthy provision cover of 31%. Separately, the bank continued to rampup contingent buffers (Rs16bn in Q4), taking it to Rs131bn/1.3% of loans, despite no visible signs of any asset-quality risk in the near term. The FB/NFB exposure rated below BB declined to Rs47.0bn/0.5% of loans from Rs55.8bn/0.6% in Q3.

* Top Buy: ICICI remains our top pick in the banking space, given its superior financial performance, top-management stability/credibility and strong capital/provision buffers. We retain BUY with a TP of Rs1,250/share, valuing the bank at 2.9x Mar-25E and subsidiaries’ value at Rs170/share. Key risks: Slow macro/consumption hampering the bank’s growth and asset quality.

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