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MOSL: ICICI BANK (Buy)-Operating performance strong-Provision coverage improves further

ICICI BANK: Operating performance strong; Provision coverage improves further

(ICICIBC IN, Mkt Cap USD38.9b, CMP INR416, TP INR520, 25% Upside, Buy)

 

• ICICIBC's 1QFY20 PAT of INR19.1b (est. of INR21.2b), was led by strong NII and controlled opex. Core PPoP grew a healthy 21% YoY (in-line).
• NII grew 27% YoY to INR77.3b, led by healthy loan growth with additional boost from interest on IT refunds. NIMs stood at 3.62% v/s 3.72% in 4QFY19 including 9bp impact on IT refund (INR1.8b) and 8bp impact due to interest collection from NPLs. On a like-to-like basis, margins moderated marginally by 3bp QoQ.
• Other income declined 11% YoY as 1QFY19 had stake sale gain from IPRU while core fee income grew ~10% YoY (retail forms 72% of total fees). Total income, thus, was up 12% YoY to INR111.6b (in-line). Opex grew 18% YoY due to higher employee expense growth of 29% YoY (due to higher retirement led provisions).
• Advances grew 15% YoY with domestic book growing 18% YoY (~22% YoY growth in retail), while overseas loan mix declined further to 10.1%. Deposit growth stood healthy at 20.8% YoY. Term deposits grew 34% YoY, resulting in moderation in average CASA mix to 43.4% v/s 44.6% in 4QFY19.
• Fresh slippages stood at INR27.8b even as retail slippages increased to INR15.1b (including INR4.5b agri slippages from Kisan Credit portfolio). GNPL/NNPL ratios improved 20bp/30bp QoQ to 6.5%/1.8%. PCR improved 340bp QoQ to 74.1% (83.4% including TWO).
• Other highlights: (a) Retail loan mix increased 120bp QoQ to 61.4%, (b) Quantum of BB and below assets declined to INR153.6b (-12% QoQ), (c) Cons. performance: ICICIBC reported PAT of INR25.1b v/s INR50m in 1QFY19.
• Valuation and view: ICICIBC has delivered steady operating performance and is set to see earnings normalization. With asset quality stabilizing, credit cost will moderate meaningfully in FY20E/21E, thus, boosting return ratios. For FY20/FY21, we have fine-tuned our estimates slightly and changed our tax assumption, thus, lowering PAT estimate by ~3%/4%. We expect the bank to deliver loan CAGR of 17% over FY19-21E, and estimate core RoA/RoE to improve to 1.5%/15.5%. Maintain Buy with a revised SOTP-based TP of INR520 (2.2x FY21E ABV for the bank). ICICI remains our top pick in the sector.