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Top-line growth moderate as NIMs cool off: ICICI Bank reported net interest income growth of 0.4% QoQ/23.8% YoY to Rs 183.1 Bn as Net Interest Margins (NIMs) declined on quarterly basis on expected lines. NIMs stood at 4.5% declining by 25bps QoQ as cost of funds grew by 18bps QoQ/100bps YoY to 4.8%. The management expects moderation in NIM over next two quarters and expects full year FY24 NIM to be in similar range as on FY23.

Rise in profits as provisions decline: Profit after tax was Rs 102.6 Bn increased by 6.4% QoQ/35.8% YoY due to decline in provisions and contingencies by 54.9% QoQ/64.6% YoY. Pre-provision operating profit remained steady at Rs 142.3 Bn with growth of 0.6% QoQ/21.8% YoY as operating cost increased. The increase in operating cost was led by other operating cost with increased by 3.5% QoQ/20.8% YoY. This was a result of increase in expenditure on tech which was up by 9% in H1FY24 as compared to H1FY23. Core operating profit increased by 3.1% QoQ/21.7% YoY

Robust loan growth: The bank continues to report healthy loan growth of 5% QoQ/18.3% YoY to Rs 11,105 Bn. Retail and SMEs segment continue to be the main drivers of growth with 21%/29% YoY. The bank remains confident of the unsecured lending loans and its filtering methods and sees scope for further growth in the segment. It continues to see growth in the retail segment (especially home loans) despite high competition in the segment. Corporate portfolio growth was moderate at 3% QoQ/15% YoY.

Term led deposits growth: Deposits increased by 5% QoQ/19% YoY to Rs 12,947 Bn which was led by strong growth in term deposit of 9% QoQ/32% YoY. CASA deposits remained moderated with a de-growth of 2% on QoQ basis and increase of 4% on YoY basis. The re-pricing of deposits rate in the quarter led to the growth in the term deposits. CASA ratio declined by 254bps QoQ/584bps YoY to 40.8% due to the increase in proportion of term deposits in the overall deposits mix.

Asset quality remains superior: Asset quality continue to improve as GNPA declined by 28bps QoQ/71bps YoY while NNPA declined by 5bps QoQ/18bps YoY. The asset quality remains stable across segments with minimal delinquencies in unsecured portfolio. It has limited presence in small ticket loans, thus, assuring that future asset quality will remain stable. Along with the improvement in asset quality, provision coverage ratio (PCR) improved by 20bps QoQ/200bps YoY at 82.6% which remains one the highest amongst the peers.

Valuation: We remain positive on ICICI Bank on the back of growing loan book, rising deposits franchise and improving asset quality. The provisions saw a decline during the quarter as the management expects asset quality to improve further. The bank’s NIM is expected to stabilize by FY24 which will accentuate the top-line growth. The digital push, healthy book quality and risk-calibrated approach will be other drivers of growth going forward. We expect NII/PPOP/PAT to grow at 18%/19%/23% CAGR over FY23-25E. We maintain Buy on ICICI Bank with a SOTP-based target price of Rs 1,252 valuing the standalone bank at 2.7x of its FY25E Adj. BV. 

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