Large cap: Buy ICICI Bank Ltd For Target Rs.907 - Geojit Financial
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Strong performance; Outlook unchanged
ICICI Bank is India’s second largest private sector bank and has a network of 5,418 branches and 13,626 ATMs across India with ~51% of branches in semiurban and rural areas.
• For Q4FY22 standalone, Net interest income grew 20.8% YoY with NIM expanding 16bps YoY to 4%.
• PAT jumped to Rs. 7,109cr (+13.3% QoQ, + 59.4% YoY), due to lower provisioning this quarter of Rs. 1,069cr (-46.7% QoQ, -62.9% YoY).
• Continued growth in deposits and advances, stable asset quality, and healthy provisions in place, coupled with further reductions in gross and net NPA levels to drive banks’ performance over the medium term. We reiterate our BUY rating on the stock with a TP of Rs. 907 based on SOTP.
Decline in provisioning boosts PAT
Interest Income registered a healthy growth of +14.3% YoY to Rs.22,675cr (+2.7% QoQ) driven by yield on advances slightly improving 12bps QoQ to 8.31% this quarter. Interest expense slightly increased to Rs 10,070cr (+2.3% QoQ; +7.0% YoY) as the cost of funds increased by 21bps QoQ to 3.68%. Overall, the Net interest income (NII) improved 20.8% YoY to Rs. 12,605cr (+3.0% QoQ). Net Interest Margin inched up 4bps QoQ to 4% this quarter. Non-interest income took a small dip of 5% QoQ to Rs. 4,737cr. Cost-to-income ratio reduced to 40.6% (vs 41.1% in Q3FY22, 41.3% in Q4FY21) as Operating expenses increased 17.4% YoY to Rs. 7,049cr. As a result, pre-provisioning profit stood at Rs. 10,293cr (+1.4% QoQ, +20.5% YoY). PAT jumped to Rs. 7,019cr (+13.3% QoQ, 59.4% YoY) on account of lower provisioning this quarter of Rs. 1,069cr (-46.7% QoQ, -62.9% YoY).
Asset quality improves
CASA ratio improved 250bps YoY to 45% as CASA Deposit grew by +20% YoY to Rs. 518,437cr, while Overall deposits surged by 14.2% YoY to Rs. 1,064,572cr. Overall advances inched up 17.06% YoY to Rs. 859,020cr as SME Loan book grew by 33.6% YoY to Rs. 405cr, Retail book grew by 19.56% YoY to 5,84,902cr and domestic loan book grew by 17.37% YoY to 817,736cr. Owing to improvement in collection efficiencies, GNPA/NNPA improved to 3.6%/0.76% in Q4FY22 vs. 4.13%/0.85% at the end of Q3FY22. The bank remains well capitalized with CRAR / Tier-1 ratio of 19.16% / 18.35% (Q3FY22: 17.91% / 16.93%). PCR dipped slightly to 79.2% in Q4FY22 (vs. 79.9% in Q3FY22).
Key concall highlights
• Resumption of economic activities after Covid-19, evidenced by surge in Bank’s ultra-frequency index to 124.4 vs 112 in January 2022.
• On the iMobile Pay app, non-ICICI bank account users grew significantly with the bank reporting 4.9 times more value of transactions than in Q3FY22, whereas financial transaction on InstaBIZ grew by 44% YoY.
• Bank has recently tied up with Emirates Skywards, to launch rewards-based credit cards
Outlook & Valuation
Overall business growth remains better than the industry average as bank’s asset quality continues to remain stable even as its NPA levels continue a downward trend. We expect a yearly 10-12% growth in credit for the bank over the next two years. Hence, we remain positive on the stock and reiterate our BUY rating with a target price of Rs. 907 based on SOTP
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