EPS for FY22/23/24e up 10-17% given outlook; further re-rating may be in the works; TP raised to Rs 950; ‘Buy’ maintained
ICICI Bank (ICICIBC) reported net profit of Rs 55.1 bn (19% q-o-q; 10% ahead of HSBCe). The beat was driven by better than expected margins. The NIM at 4.0% was up 11bp q-o-q driven by an improvement in yields as well as a reduction in cost of funds. Loan growth at 17% y-o-y / 4% q-o-q was driven by business banking, SME and retail loans. Strong loan growth and NIM expansion led to a 25% y-o-y growth in NII. Fee income increased 21% y-o-y leading to core operating profit growth of 23% y-o-y, ahead of estimates. Slippages moderated to Rs 55.8 bn (3.5% of loans), with the annualised retail slippage ratio at 4.3%. Additions to restructured loans were limited at 70bp q-o-q. Slippage from OTR 1.0 at c2% was particularly low.
Highlights from commentary: The growth outlook in retail and SME remains favourable while the outlook for government capex and PSU demand has improved. Mgmt guidance on NIMs remains muted (although it agreed that NIM drivers were in place) citing high competitive pressure on yields across segments and a potential plateau / pick-up in cost of funds. Collection trends are similar or better than March 2021 levels.
Raise EPS by 17.1/13.5/10.1% for FY22/23/24e: The key drivers of the strong EPS increases are (i) a 16.7% CAGR in loans over FY21-24e (versus 14.8% earlier); (ii) NIM of 4-4.1% over FY21-24e (c3.8% earlier); and (iii) loan loss provisions of 115/110/110bps for FY22/23 /24e (160/135/135bps earlier). ICICIBC reported an exit RoA of 1.8% and RoE of 14.1% in Q2FY22. We estimate RoA and RoE can rise to 1.9%/15.8% by FY24e. This should drive a pre-exceptional EPS CAGR of 37% over FY21-24e. We believe there are upside risks to our NIM estimates.
Strong valuation drivers in place: Superior asset quality performance, improvement in earnings contribution of the wholesale segment, new-found growth drivers in the retail segment with long runways, ability to rein in cost ratios gradually and a sharp reduction in incremental credit costs are likely to underscore ICICIBC’s superior earnings performance among Indian banks. We think consistent earnings could drive a further re-rating of the stock. We increase our TP to Rs 950 (Rs 800 earlier) based on our SOTP approach.