PL Stock Report - ICICI Bank (ICICIBC IN) - Q1FY24 Result Update - Earnings quality continues to be best-in-class - BUY

ICICI Bank (ICICIBC IN) - Gaurav Jani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs997 | TP: Rs1,180

Q1FY24 Result Update - Earnings quality continues to be best-in-class

Quick Pointers:

♦ Core PAT beat PLe by 10% given better NII, fees and provisions.

♦ NIM for FY24E would likely be protected providing leeway to incur opex.

We raise FY24/25E earnings by ~6.0% as upgrade in NII/NIM and reduction in provisions would override higher opex. Likely RoE trajectory has improved by 30-60bps to 16.4-16.8% (over FY24-26E). Sharp focus on core PPoP may lead to more upgrades. ICICIB delivered another stellar quarter with core PAT at Rs92.4bn beating PLe by 10.2% led by better NII, fees and lower provisions. Loan accretion at 3.7% QoQ was ahead, driven by superior growth in high yielding segments (PL/CC and SME). Healthy credit demand and benign asset quality provides leeway to invest in business, since NIM would be cushioned by strong unsecured growth and controlled slippages. ICICIB is trading at a premium (currently 5%) to HDFCB (merged), which should remain so in near to medium term given its superior RoA/RoE profile. Maintaining multiple at 3.0x, we raise SOTP based TP to from Rs1180 to Rs1130. Reiterate ‘BUY’.

♦ Core PAT beat of 10% led by better NII, fees and provisions: NII was ahead at Rs182.3bn (PLe Rs174.3bn) led by better NIM and loan growth. NIM (calc.) was a beat at 5.04% (PLe 4.89%), as yield on IEA was higher at 9.2% (PLe 9.0%). Loan growth was ahead at 18.1% YoY (PLe 16.1%); deposit accretion was 17.9% YoY (PLe 14.7% YoY). Other income too was ahead at Rs54.35bn (PLe Rs50.9bn) driven by higher fees/treasury. Opex was a miss at Rs95.2bn (PLe Rs91.1bn) led by higher staff cost. PPoP was Rs141.4bn while core PPoP at Rs138.9bn was ahead of PLe by 3.9%. GNPA saw a slight blip due to higher slippages; while GNPA ratio was better at 2.76% (PLe 2.78%) absolute GNPA was higher to PLe by 3%. Provisions were lower Rs12.9bn (PLe Rs19bn). PAT was Rs96.5bn (PLe Rs86.4bn), while core PAT was 10% ahead of PLe.

♦ Overall loan growth of 3.7% QoQ: Domestic loan growth was 4.0% QoQ led by retail (4.5%), BuB (3.8%) and SME (5.0%). Corporate grew by 2.8% QoQ driven by growth in well rated financial as well as non-financial corporates like NBFC and real estate. Retail growth was also led by unsecured (PL+CC), which saw rapid accretion of 7.6% QoQ and 40.6% YoY. Bank is comfortable with its unsecured origination and sees growth opportunities by penetrating existing customers as well as adding new customers. Deposit growth was mainly led by TD accretion of 25.8% YoY. TD consists majorly of retail granular deposits which remains the prime driver of deposit growth.

♦ Better NIM/lower provisions to drive PAT upgrade of ~6% in FY24/25E: While bank expects funding cost to go up which could pressurize margins, we believe asset yields could be protected due to higher unsecured growth and repricing of bond portfolio. Hence we raise NIM for FY24/25E by 15/11bps bps. Due to growth focus, bank added 174 branches and 6000 employees in Q1’24. We expect opex to remain elevated in FY24/25E and raise our estimates by ~4.5%. Due to benign credit environment we lower provisions for FY24/25E by 30/16bps. Buffer provisions at Rs131bn (124bps of loans) were maintained.

(Click on the Link for Detailed Report)