ICICI Bank Q1FY20 Results shows strong earnings and business performance

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#Analytical update by IndiaNivesh

ICICI Bank (ICICIBC) delivered a 4.8% beat on net profit estimate led by lower slippages and credit costs. Despite the strong earnings momentum, the bank management has not advanced its earnings goal target (sticking to achieving 15% RoE in Q1FY21E) while exuding an overall confidence on balance sheet momentum and earnings quality. ICICI Bank exist as top pick amongst corporate banks and recommend BUY with a revised TP of Rs480.

  • NII in-line, fees slightly weak: ICICIBC reported Rs78.4bn NII, in-line with our estimate of Rs78.4bn, implying a NIM of 3.61% (domestic 3.93%, overseas 33bps). The NIM trended lower 11bps QoQ to 3.61%, an impact mostly driven by one-offs (interest on IT refund) with recent changes in MCLR (-10bps) and TD rates (-20bps) yet to fully reflect in YoA/CoD, both of which have risen 7bps/8bps QoQ respectively. Fees, driven by retail (72% of total fees) were only marginally off estimates. Overall, on core earnings, it was a healthy performance. We expect the core NIMs to decline with the onset of a soft interest rate regime though we don’t see the same as being impactful.
  • Business momentum robust: Term deposits were key drivers of domestic deposits even as CA (-16.5% QoQ) and SA (-4% QoQ) showed higher decline than usually seen in Q1. Nevertheless, the average CASA growth of 12.3%YoY was much stronger than the period end CASA growth of 8.3%YoY. Domestic loan book maintained a strong 17.9%YoY momentum driving up overall loan book growth to 14.7%YoY. Retail advances constituting 61.4% of net advances grew 22.4%YoY. Personal loans (54.2%YoY), business banking (46.1%YoY), and credit cards (32.9%YoY) were top products in growth rate while home loans (19.1%YoY) were top volume contributors (Rs295bn/44% of incr. retail). While the bank management maintained it was not pursuing a particular growth target, we estimate ICICIBC to maintain a mid-teen loan growth rate with retail continuing to dominate the loan growth.
  • Sustained confidence on asset quality: Although slippages at Rs27.8bn were lower than our Rs37bn estimate, the management does not expect the slippages on full year basis to be significantly lower than in FY19 (Rs110.4bn, retail ~Rs36bn). This still betters our current slippage estimates, which were marginally higher than FY19 slippages. With overall improving trends (decline in corporate/SME slippages), comfort on NBFCs/HFC/builder exposures, and improving rating profile of portfolio, the asset quality performance commentary from ICICIBC management appears reasonable. Changes to slippage estimates are key drivers of changes to our earnings estimate. 

Valuation: We initiated coverage on ICICIBC with a BUY rating and a price target of Rs410. With this review note, we are upgrading the target price to Rs480, valuing the bank 2.9x/22x FY20E ABV/EPS respectively. We value the ICICIBC banking business 2.3x FY20E ABV with subsidiaries contributing Rs110 to the bank’s SOTP based price target.