EUR 120.00 For Business Accounts Only

MOSL: ICICI BANK (Buy)-Strong operating performance; margins expand on improving asset mix

ICICI Bank: Strong operating performance; margins expand on improving asset mix

(ICICIBC IN, Mkt Cap USD48.4b, CMP INR534, TP INR650, 22% Upside, Buy)

 

Slippages increase but outlook stable

• Buoyed by a strong performance across metrics, ICICIBC reported its highest-ever quarterly profits (supported by Essar resolution) in 3QFY20. Loan growth in chosen business segments (Retail, Business Banking & SME) remained buoyant, while deposits growth moderated in the quarter.
• Slippages adjusted for the two corporate accounts were on track, while retail slippages rose due to seasonal weakness in agri segment. We expect the operating performance to remain healthy, while high PCR and limited exposure to stress names will keep credit cost under control. Maintain Buy. 

Core performance strong; BB & below pool rises on downgrade of telecom account

• PAT increased 158% YoY to INR41.5b (5% beat), led by strong NII and lower provisions. NII was up 24% YoY to INR85.5b (3% beat), led by ~13% YoY loan growth and 13bp QoQ margin expansion (10bp benefit due to interest recoveries from steel account).
• Other income was up 18% YoY, led by core fee income growth of ~17% YoY to INR35.9b (retail: 77% of total fees), while treasure income was up 11% YoY at INR5.3b. Opex increased 21% YoY to INR55.7b (in-line), resulting in PPoP growth of 23% YoY to INR75.5b (6% beat). Core PPoP was up 24% YoY.
• Advances were up 12.6% YoY with domestic book growing 16% YoY (~19% YoY growth in retail), while the overseas loan mix declined to 8.9%. Deposit growth however moderated to 18% YoY, though the CASA mix improved to 47% from 46.7% in 2QFY20 (60bp rise in avg. CASA ratio to 42.8%).
• Fresh slippages increased to INR43.6b, led by a broking and south-based industrial group, resulting in corporate slippages of INR24.7b. Retail slippages stood at INR18.9b. However, higher recoveries/upgrades (INR40.9b) and write-offs (INR24.6b), resulted in ~5% QoQ decline in GNPL/NNPL. GNPA/NNPA ratio thus improved by 40bp/10bp QoQ to 6.0%/1.5%, while PCR was stable at 76.1% (85.7% incl. TWO). BB and below book increased to INR174b, led by downgrade of a telecom account.