Q1FY20 was strong for ICICI Bank marked by significantly higher-than-expected PAT of Rs 19.1 billion (our estimate: Rs 16.7 billion) primarily on lower provisions (down 41.5% year-on-year). Key highlights of Q1: (a) domestic advances growth improved to 17.9% y-o-y — retail book (up 22.4%); (b) decline in BB and below rated pool to 2.6% of loans vs 3% in Q4FY19; and (c) headline asset quality improved with GNPA down 21 bps quarter-on-quarter at 6.5%.
The management sounded confident and expects to do calibrated business growth based on opportunities available rather than target-based approach. Asset quality has come well under control and the management maintained its credit cost guidance at 120-130 bps for FY20. We retain ICICIBC as our preferred pick in banking space with SoTP-based TP unchanged at Rs 500 (2.3x FY21E ABV on core book).
Growth in domestic loans improved further to 17.9% y-o-y, primarily supported by retail book (up 22.4% y-o-y) — a) global advances growth was relatively lower but stable at 14.7% y-o-y to Rs 5.9 trillion; (b) deposit growth was relatively higher at 20.8% y-o-y, outpacing the growth in Casa deposits (up 8.2% y-o-y) leading to sharp 438 bps fall in Casa ratio to 45.2%; (c) Slippage moderated significantly to Rs 27.8 billion (2.2% of loans vs 2.8% in Q4); slippages in Q1 was primarily led by retail book and BB and below portfolio; and (d) recent rise in risk weights of unrated exposure of borrowers has an impact of 39 bps on CET1 ratio (Tier I – 14.6% & CAR – 16.2%).
ICICI Bank’s business model has stabilised with calibrated business approach and a focus on building the retail franchise. Control on costs, falling share of overseas business, high PCR, adequate capitalisation and a stable management team provide comfort. We believe the management will be able to achieve its 15% RoE target for June 2020 which will help in rerating of the stock.