ICICI Bank (ICICIBC) has reported strong quarterly earnings that were in line with expectations. Despite making contingent provisions of Rs 16 bn, the core credit cost remains insignificant, which is a positive development for FY23. The bank’s core pre-provision operating profit (PPoP) grew by an impressive 36% y-o-y, and its net interest margins (NIMs) expanded by a healthy 25 basis points q-o-q to 4.9%. Additionally, the bank’s business growth was strong, with overall loans growing by 19% y-o-y.
The Bank has shown robust asset quality in its latest earnings report, with improvements in the gross non-performing assets (GNPA) and net non-performing assets (NNPA) ratios, as well as an increase in the provision coverage ratio (PCR). The bank now has a total contingency buffer of Rs 131bn, indicating that it has sufficient reserves to weather any potential asset quality issues in the future.
Given its strong asset quality and momentum in business growth, ICICI Bank is well positioned to continue delivering steady earnings. Based on our estimates, we expect the bank to achieve a return on assets (RoA) and return on equity (RoE) of 2.2% and 17.6%, respectively, by FY25. In light of these positive developments, we reiterate our BUY rating on ICICI Bank’s stock. Overall, these results demonstrate the bank‘s continued resilience and ability to grow its business despite challenging market conditions.
ICICIBC’s Q4FY23 PAT grew 30% y-o-y (in line) to Rs 91.2bn, aided by healthy NII growth, even as the bank continued to create contingent provisions. The bank has identified strong growth opportunities in the retail, SME, and business banking in the upcoming fiscal years. Additionally, the corporate segment provides good opportunities in some of the sectors such as NBFCs and real estate. The bank registered a treasury loss of Rs 0.4 bn in 4QFY23 v/s a gain of Rs 0.36b in 3QFY23. NIM has risen to 4.9% in 4QFY23 from 4.65% in 3QFY23. The bank believes that the NIM has more or less peaked out and will continue to moderate from this level.
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Valuation and view
ICICIBC reported another strong quarter in Q4FY23, driven by healthy NII/Core PPoP growth and well-managed provisions. This was achieved despite creating additional provisions for contingencies and NPAs, which was supported by the bank’s exceptional asset quality. The stable mix of a high-yielding portfolio (retail/business banking) and a low-cost liability franchise is driving steady NII growth, resulting in margin expansion to 4.9%. The bank is seeing a strong recovery across segments, while asset quality trends remain healthy with industry-best PCR at 83%. The additional Covid-related provision buffer provides further comfort. We estimate ICICBC to deliver RoA/RoE of 2.2%/17.6% in FY25. We reiterate our Buy rating with our SoTP-based TP of Rs 1,150.