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Sustaining superior earnings profile

ICICI Bank’s PAT at INR102.7bn, grew 24% YoY (flat QoQ) was in line with our estimates. The bank delivered healthy NIMs of 4.43% (-10bps QoQ) and a 2.9% QoQ deposit growth to drive a 13% YoY NII growth (+2% QoQ). PPOP grew 10.9% YoY (+3.5% QoQ) to INR147.2bn and was tad higher than estimates of INR was at 147bn (vs +2.3% JMFe) on the back of continued loan growth momentum (+4% QoQ), lower opex (+2% QoQ) and higher other income (+6% QoQ). Credit costs for 3QFY24 were higher at 39bps (vs 23bps QoQ) as the bank created provisions of INR6.3bn on AIF investments while core credit costs remained under control (slippage ratio at 2.15% vs 1.8% QoQ). Loans grew 4% QoQ (+19% YoY) with retail loans growing by 4.5% QoQ (21% YoY) on a gross basis. Domestic corporate loans grew 13.3% YoY ( 2.9% QoQ) with continued strong growth seen in SME, business banking and rural segments. ICICI has been generating RoAs higher than 2% despite declining margins and has also delivered healthy growth momentum. We believe this should ensure that stock will continue to trade higher than peers. We expect ICICI Bank to deliver RoA/ RoE of 2.2%/17.6% by FY26E and value the bank on SoTP basis with a target price of INR 1330 (core bank valued at 2.7x FY26E BVPS) with subs valued at INR 140. ICICI Bank remains our top pick in the sector.

* Sustained growth momentum: Loan growth remained strong at +19% YoY/+4% QoQ. Growth was led by retail segments growing at +20% YoY/+4% QoQ. Within retail, personal loans (+6.4% QoQ), business banking (+6.5% QoQ) and credit cards (+11.5% QoQ) continued to clock higher growth. Domestic book grew at +19% YoY/+4% QoQ whereas, overseas book grew at +11% YoY/ +7% QoQ. Domestic corporate loan growth remained steady at +13% YoY/+3% QoQ. Deposits growth remained healthy at +19% YoY/ +3% QoQ admist rising competition. This was led by TDs at +31% YoY, +5%QoQ whereas CASA deposits grew at 4% YoY, flat QoQ. Daily average CASA ratio stood at 39.4% vs 40.8% QoQ. Bank remains comfortable on liquidity with its LCR at 120% and LDR at 87%. Mgmt. mentioned that they try and maintain their LDR at ~85% on their domestic book. We expect advances CAGR at 17% and deposits CAGR at 16% over FY23A-26E.

* NIMs soften further but remain healthy: NIMs witnessed contraction of 10bps QoQ to 4.43%. Cost of deposits increased by +19bps QoQ during the quarter. While core loan yields remained largely stable, reported yield on advances declined 2bps QoQ primarily due to interest reversals on KCC loans. Mgmt. expects a slight NIM contraction incrementally due to pending deposit repricing, but expects to end the year ~ 4.5%, mirroring FY23. PPOP stood at 147bn (+11% YoY/ +4% QoQ) on the back of higher other income (+6% QoQ) and lower opex (+2% QoQ). We expect earnings CAGR of 16% over FY23A-26E aided by stable asset quality and continued growth momentum with a minor decline in margins.

* Asset quality in fine fettle: Gross slippages were higher QOQ at 2.15% led by impact on the Kisan credit card portfolio though net slippages were contained due to two large upgrades during the quarter. Provisions on AIF investments of INR6.3bn resulted into higher reported credit costs (39bps vs 23bps QoQ). Headline asset quality continued to improve with GNPA/NNPA at 2.44%/ 0.47% (vs 2.63%/0.45% QoQ). Mgmt. expects net additions on retail side to gradually normalise upwards with credit cost well within comfortable levels. Management indicated despite strong growth in unsecured portfolio over the last few years, they are not seeing any concerning trends. We build avg. credit costs of 47bps over FY24-FY26E.

* Valuation and view: ICICI Bank continues to deliver superior earnings profile (RoA consistently above 2% along with healthy growth momentum. The moderation in margins remains within comfortable levels and asset quality remains in strong shape. These should ensure that ICICI Bank will retain its valuation premium over large private bank peers. We expect ICICI Bank to deliver RoA/ RoE of 2.2%/17.6% by FY26E and value the bank on SoTP basis with a target price of INR 1330 (core bank valued at 2.7x FY26E BVPS) with subs valued at INR 140. ICICI Bank remains our top pick in the sector.

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