ICICI Bank (ICICIBC) announced a net profit of 55.1 billion rupees (19% qoq; 10% ahead of HSBCe). The tempo was driven by better-than-expected profit margins. NIM is up 4.0% by 11 basis points qoq driven by improved yields as well as lower cost of funds. Loan growth of 17% y/y / 4% q/q was driven by Business Banking, SME and Retail Loans. Strong loan growth and expansion in NIM led to 25% year-over-year growth in NIM. Fee income increased 21% year over year resulting in core operating profit growth of 23% year over year, ahead of estimates. Slips eased to 55.8 billion rupees (3.5% of loans), with annual retail slippage at 4.3%. Additions to restructured loans were limited to 70 basis points on a quarterly basis. The slip from OTR 1.0 at c2% was particularly low.
Highlights of Commentary: Growth prospects in the retail and SME sector remain favorable while the outlook for government capital expenditures and demand for PSU have improved. Mgmt’s guidance on NIMs remains muted (although it agreed that NIM drivers are in place) citing high competitive pressures on returns across sectors and a potential plateau/recovery in cost of funds. Group trends are similar or better than March 2021 levels.
17.1/13.5/10.1% EPS increase for FY22/23/24e: The main drivers of strong EPS increases are (i) 16.7% compound annual growth in loans during FY21-24 (versus 14.8% previously ); (ii) net national income of 4–4.1% compared to fiscal year 21–24e (prev. c3.8%); and (iii) loan loss provisions of 115/110/110 basis points for fiscal year 22/23/24e (previously 160/135/135 basis points). ICICIBC reported a return on equity of 1.8% and a RoE of 14.1% in the second quarter of FY22. We estimate that ROE and ROE could increase to 1.9%/15.8% by FY24e. This should result in a previously exceptional CAGR of 37% during fiscal year 21-24e. We believe there is an upside risk to our NIM estimates.
Strong valuation drivers in place: potentially superior asset quality performance, improved wholesale segment profit contribution, new growth drivers in the retail segment with long runways, the ability to gradually rein in cost ratios, and a sharp decline in incremental credit costs are likely to underline ICICIBC outperforms earnings among Indian banks. We believe consistent earnings could prompt a further reclassification of the stock. We increased our TP to Rs 950 (earlier Rs 800) based on our SOTP approach.