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ICICI takes on the mantle of stability champion

Result Highlights

* Asset quality: Gross NPA additions amounted to Rs 42.04bn for the quarter, translating to an annualized slippage ratio of 1.9% in 4QFY22 ✓ Margin picture: NIM at 4.0% was up 4 bps QoQ, as increase in yield on advances outpaced the increase in cost of funds

* Asset growth: Advances grew 5.5%/17.1% QoQ/YoY driven by healthy growth in Retail, Business Banking and SME loans

* Opex control: Total opex de-grew/grew -0.4%/17.4% QoQ/YoY, Emp. exp. degrew/grew -2.3%/20.9% QoQ/YoY and other exp. rose 0.7%/15.7% QoQ/YoY

* Fee income: Fee income rose 1.7%/14.4% QoQ/YoY driven by sequential traction across fee income streams

Our view – ICICI takes on the mantle of stability champion

Management commentary alludes to continued healthy loan growth trends in retail, SME and business banking: Management stated that, in retail lending, market shares in individual micro markets are not saturated for the bank. Overall retail loan growth (including rural loans) was 5.8% QoQ. Specifically, for credit cards, while the revolve rate is still lower than pre-pandemic levels, there has been a gradual improvement. Credit card dues grew 9.9% QoQ whereas personal loans grew 10.4% QoQ. On SME and business banking, the growth has not been driven by ticket size change but by enhancement of coverage. SME and business banking growth has been 11.3% QoQ and 10.2% QoQ, respectively. With regard to corporate lending, the bank lets go of opportunities where is it sees inadequate pricing. Corporate lending was relatively slower than the rest of the bank, growing 3.4% QoQ.

While management stated that it aims to maintain margin, we think improving loan mix should aid piecemeal margin enhancement: The impact from income tax refund amounted to 1 bp in 4QFY22, 6 bps in 3QFY22 and 1 bp in 4QFY21. The fourth quarter has traditionally seen an improvement of 8-10 bps due to the differential in number of days and other factors. Hence, the core net interest margin has remained stable sequentially after factoring in the impact from income tax refund. Management stated that cost of deposits has bottomed out. While the yield on existing book may move up, incremental yield will also have an impact. Importantly, we see loan mix evolving positively for ICICI. We maintain ‘Buy’ rating on ICICI with a revised price target of Rs 1043: We value the standalone bank at 3.1x FY23 P/BV for an FY23E/24E RoE profile of 15.8/16.6%. We assign a value of Rs 174 per share to the subsidiaries, on SOTP.

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