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Another remarkable quarter; remains preferred pick

Earnings inline despite AIF provisioning

-      ICICI Bank (ICICIBC) reported a strong performance in 3QFY24, with 24% YoY growth in net earnings (inline) despite making AIF provisions of INR6.3b. NIMs contracted 10bp QoQ to 4.43% (better than estimate).

-      Credit growth was healthy at 19% YoY/4% QoQ, led by continued traction in Retail, SME and BB segments. Deposit growth was also steady at 19% YoY/2.9% QoQ.

-      On the asset quality side, slippages were slightly elevated amid seasonally higher slippages from the Kisan Credit Card (KCC) segment. GNPA ratio decreased 18bp QoQ while NNPA remained largely flat. The bank maintains a total contingency buffer of INR131b (1.1% of loans), which provides comfort.

-      We slightly raise our EPS estimates by 1.6%/0.9% for FY24/FY25 and expect ICICIBC to deliver RoA/RoE of 2.3%/18.3% in FY25. We maintain BUY with a TP of INR1,230.

Business growth remains balanced; NIM decline to moderate in 4Q

-      ICICIBC’s 3QFY24 PAT grew 24% YoY to INR102.7b (in line), led by healthy revenue growth and controlled opex even as provisioning increased due to the recent RBI circular related to AIF exposure. The bank reported annualized RoA of 2.3% and RoE of 18.5%. For 9MFY24, PAT stood at INR301.8b, up 32.5% YoY.

-      NII grew 13% YoY (in line), aided by healthy loan growth of 18.5% YoY/ 3.9% QoQ. NIMs moderated 10bp QoQ to 4.43%. Other income grew 21% YoY to INR60.9b, led by healthy core fees (19% YoY growth), while treasury gains stood at modest INR1.2b.

-      Opex rose 22% YoY (2% lower than our estimate), leading to 11% YoY growth in PPoP to INR146b (4% higher than our estimate). Core PPOP grew 10.3% YoY.

-      On the business front, advances grew 18.5% YoY/3.9% QoQ, led by 19%/21% YoY growth in Domestic/Retail loans. Among retail, housing led the growth, while growth in unsecured credit (PL/CC) too remained strong. Unsecured loan mix has increased to ~14% of total loans. SME book increased by 28% YoY, while BB grew 32% YoY.

-      On the liability front, deposits grew 19% YoY (+3% QoQ), while CASA deposits saw 4% YoY growth (flat QoQ). The average CASA mix, thus, declined 140bp QoQ to 39.4% (CASA ratio at 39.6% as of Dec’23).

-      Fresh slippages inched up to INR57b amid seasonally higher slippages from the KCC portfolio. The GNPA ratio declined 18bp QoQ to 2.3%, NNPA remained largely flat at 0.44% and PCR declined to 81%. The bank maintains a total contingency buffer of INR131b/1.1% of loans.

Highlights from the management commentary

-      NIMs declined by 10bp to 4.43%. ICICIBC expects FY24 margins to be at the similar levels as last year (FY23 NIMs at 4.47% with 1H23 at 4.16% and 2H23 at 4.78%). The management expects some moderation in margins but at a slower pace vs. 3QFY24.

-      On unsecured loans, the bank has refined credit parameters and has increased pricing on PL by 20-25bp. The bank expects growth to moderate from the current levels.

-      The competitive intensity remains high across products, but the bank is focusing on being disciplined in pricing and working on the relationship value of clients, rather than solely focusing on loan growth.

Valuation and view

ICICIBC reported another steady quarter, driven by healthy NII and controlled provisions underpinned by robust asset quality. The stable mix of a high-yielding portfolio (Retail/Business Banking) and continued traction in BB, SME, and secured retail is enabling broad-based growth, which helps to retain business diversification. NIMs declined 10bp QoQ and the management expects the moderation to continue in the coming quarters, albeit at a smaller pace. Asset quality trends remain steady reflecting in the healthy GNPA/NNPA ratios. The additional contingency provisioning buffer (1.1% of loans) provides further comfort. We increase our EPS estimates by 1.6%/0.9% for FY24/FY25, with RoA/RoE of 2.3%/18.3% in FY25. We expect the bank to sustain a ~15% CAGR in PAT over FY24-26E. Reiterate BUY with a revised SoTP-based TP of INR1,230 (2.5x Sep’25E ABV + INR206 for subs).

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