ICICI Bank rating – Buy: A mixed first quarter for the company

CV segment NPLs was elevated, while cards/personal fared better. Total COVID-19 restructuring invoked was only

Higher NPL formation vs. broader market expectation was a negative and related questions dominated the earnings call. However, the Street may look through this blip (mgmt. was positive on recoveries/collections trends) and instead focus on the operating profit growth. ICICIBC reported ~23% y-o-y growth in core PPOP, driven by an ~18% y-o-y increase in NII. NIM improved to 3.89% (+5bp q-o-q), driven by further improvement in cost of funds making a new low of 3.82%, a decline of 13bp q-o-q.

Asset quality suffered – gross NPL formation (as % of 12-month-prior customer assets) was 4.6% (FY21: 2.3%, FY20: 2.4%). We think the bank is positioning towards right customer selection, working towards having a greater share of profit and payment pools, leading us to raise long-term book-value multiples. We reiterate Buy and raise SOTP-based TP to Rs 790, implying 17% upside.

Loan and core PPOP growth were positives: Loans were up 0.7% q-o-q with retail +1.2%, SME -1.7%, domestic corp. +0.1%. Sequential retail loan growth was driven by dealer financing, loan against shares and mortgages. The sequential loan mix may have helped +5bp improvement in NIM. Core PPOP grew ~23% y-o-y, as a result. Savings balance growth was robust with CASA (avg.) ratio of 43.7%.

Asset quality suffered: Gross NPL formation at Rs 72.3 bn was higher than expectation. Wholesale and retail slippages were 0.8% and 6.7%, respectively. Rural portfolio contributed 30% of retail slippages. CV segment NPLs was elevated, while cards/personal fared better. Total COVID-19 restructuring invoked was only
Rs 48.6 bn (0.7% of loans). Gross stressed assets (gross NPA, BB & below, COVID restructuring, security receipts, etc.) increased 50bps q-o-q to 8% of gross customer assets. The bank wrote back Rs 10 bn from contingent provisions while utilising Rs 12 bn towards higher provisions.

Change in estimates: We cut FY22F-23F EPS estimates by ~3% to factor in slightly higher credit costs. We expect FY21-24F EPS/adjusted BV CAGR at 25%/15%. Our new TP of Rs 790 includes the standalone bank at Rs 635 (2.6x P/B), life insurance at Rs 75, general insurance Rs 46, asset management Rs 27, securities Rs 28 and balance Rs 18, with a 20% holdco discount. Risk: flare-up in credit cost, weaker loan growth.