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Bottom-line aided by lower provisioning

ICICI Bank is India’s second largest private sector bank and has a network of 5,268 branches and 14,141 ATMs across India with ~51% of branches in semiurban and rural areas.

* For Q1FY22 standalone, Net interest income went up 17.8% YoY with marginal +20bps YoY expansion in NIM to 3.89%.

* Pre-provisioning profit reached Rs. 8,894cr (-17.5% YoY) impacted by 290bps YoY rise in cost-to-income ratio. However, PAT surged 77.6% with PCR 78.2%, owing to lowered provisions.

* Commercial and rural banking loans to act as growth catalyst in the upcoming quarter. Strong liquidity may be diverted into loan growth as credit demand recovers. Asset quality has been comparatively strong with bank having made adequate provisioning in-line with the risk profile. Hence, we maintain our rating as BUY and value the stock at 2.2x FY23E BVPS with a revised target price of Rs. 788 based on SOTP.

Bottom line benefits from lower provisioning

For Q1FY22 standalone, Net interest income went up 17.8% YoY to Rs. 10,936cr with marginal +20bps YoY expansion in NIM to 3.89%. Overall impact on interest spreads was positive as yields on advances was recorded as 8.26% (-104bps YoY), while cost of deposits also lowered to 3.65% (-88bps YoY). Cost-to-income ratio climbed to 40.4% (+290bps YoY). This was on account of higher non-employee operating expenses (47.7% YoY), which offset the rise in Fee income (52.9% YoY). Resultantly, pre-provisioning profit reached Rs. 8,894cr (-17.5% YoY). However, PAT surged 77.6% YoY to Rs. 4,616cr, on back of lower provisions in the quarter (-62.5% YoY).

Asset quality remains intact

Total Deposits and Advances remained stable at Rs. 926,224cr (-0.7% QoQ, 15.5% YoY) and Rs. 738,598cr (0.7% QoQ, 17.0% YoY). CASA ratio improved 120bps QoQ to 43.7%. Credit growth was driven by mortgages (24.0% YoY, 2.3% QoQ), Auto finance (15.0% YoY, flat QoQ) and rural loans (24.2% YoY, -1.6% QoQ). On asset quality front, GNPA/NNPA inched up to 5.15%/1.16% vs. 4.96%/1.14% respectively in the last quarter. Sector exposure to retail finance and services sector has changed to 40.5% and 9.5% (vs 39.3% and 9.9% in Q4FY21) respectively.

Key highlights

* For ICICI Prudential, VNB grew 78.1% YoY; VNB margin 29.4% (+430bps QoQ).

* Core operating profit to average assets ratio at 2.88% (vs. 2.95% in Q4FY21).

* Recoveries and upgrades were recorded at Rs. 3,627cr. COVID-19 provisions stood at Rs. 6,425cr as on June 2021 (vs. Rs. 7,475cr end of Q4FY21).

* The bank is well capitalized with total capital adequacy ratio at 18.71% and Tier1 capital ratio at 17.68% at the end of this quarter.

Outlook & Valuation

We expect commercial and rural banking loans to act as growth catalyst in the upcoming quarter. Strong liquidity may be diverted into loan book growth as the credit demand recovers. The asset quality of the bank has been comparatively strong with bank having made adequate provisioning in line with the risk profile. Hence, we maintain our rating as BUY and value the stock at 2.2x FY23E BVPS with a revised target price of Rs. 788 based on SOTP valuation.

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