Buy ICICI Bank Ltd For Target Rs.950 - Yes Securities
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Most parts of ICICI’s RoA tree tracking well, Reiterate as key top pick
Result Highlights
* Asset quality: Gross NPA additions amounted to Rs 55.78bn for the quarter, translating to an annualized slippage ratio of 3.0% in 2QFY22
* Margin picture: NIM at 4.0% was up 11 bps QoQ, driven by a decline in cost of deposits and lower interest reversals
* Asset growth: Advances grew 3.6%/17.2% QoQ/YoY driven by retail loans, business banking and SME loans
* Opex control: Total opex rose 8.9%/28.0% QoQ/YoY, employee expenses rose 0.4%/21.2% QoQ/YoY and other expenses rose 14.3%/32.3% QoQ/YoY
* Fee income: Fee income rose 18.4%/21.4% QoQ/YoY driven by strong sequential traction in credit card spends, among other factors.
Our view –
Most parts of ICICI’s RoA tree tracking well, Reiterate as key top pick Owing to particularly healthy recoveries and upgrades of Rs 54.82bn, net slippages amounted to just Rs 0.96bn: Standard restructured book rose to Rs 96.84bn or 1.3% of advances compared with Rs 48.64bn as of June 2021. As much as Rs 69.92bn of the restructured book came from the retail segment, of which more than 95% were secured loans. The restructured book carries provisions worth Rs 19.5bn while Covid provisions worth Rs 64.25bn have remained stable QoQ. Non-NPA provisions amount to Rs 149.5bn, providing a cover of 2.0% on advances. Once the pandemic subsides, management expects credit costs of 25% of core PPoP, which translates to 120-125 bps.
Management said they would target protecting NIM at 1HFY22 levels of 3.94%: Commentary, however, pointed to further NIM expansion on the horizon as excess liquidity would get unwound, loan pricing would not be overly aggressive and pace of unsecured consumer finance would normalize higher.
Retail loans, business banking and SME loans grew 5.0%, 12.3% and 11.3% QoQ, respectively: Within retail loans, home loans, personal loans and credit card dues saw strong traction, rising 6.1%, 6.3% and 16% QoQ, respectively.
We maintain ‘Buy’ rating on ICICI with a revised price target of Rs 950: We value the standalone bank at 2.75x FY23 P/BV for an FY22E/23E/24E RoE profile of 13.8/15.0/16.0%. We assign a value of Rs 197 per share to the subsidiaries, on SOTP. We had flagged ICICI as one our top 3 picksin our sector initiation report dated 30th Jun 2021.
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