ICICI Bank Limited - Q2FY21 Result Update - YES Securities

Sweet risk-reward; bank confident on asset quality - Retain BUY with 12m PT of Rs500

ICICI Bank delivered largely in-line Q2 FY21 results; however, its commentary on collection efficiency across products, potential restructuring, near and longer-term credit cost, NIM outlook and loan growth was positive. Collection efficiency at the bank-level is at 97% of pre-Covid trend (wholesale better than retail slightly) and is expected to normalize fully in coming months as collection effort intensifies. This underpins bank's low restructuring expectations across segments (including the vulnerable BB & Below Corporate & SME pool which stands at 2.5% of net advances).

While at this point overdue portfolio is in-sync with pre-Covid period, there will be a large increase in delinquencies in H2 FY21 which in majority would get collected or restructured. Hence, the bank believes that current Covid provisioning buffer (1.3% of loans, apart from cushion of 79% PCR) should be adequate to address the requirement for restructuring (>10% prov.) and residual NPL flow. While provisioning in H2 FY21 will likely be lower than H1 FY21, the bank sees it normalizing in FY22.

Besides the regularization of credit cost, some recovery in NIM (coming back to maintaining usual BS liquidity), acceleration in loan growth and retention of cost reductions would drive sizeable profitability improvement in the coming years. The core bank trades at 1.3x FY22 P/ABV, and should continue to re-rate on the back of strength in the balance sheet (low-risk portfolio in this cycle + high capitalization). We retain BUY with a 12m PT of Rs500.

Not a large core PPOP beat like other banks

- Core PPOP came in marginally ahead of estimates with better than expected loan growth (3% qoq and 6% yoy) - traction in retail loans was strong (up 6% qoq and 13% yoy).

- Disbursements level in most retail products higher or near the pre-Covid run-rate in recent months - mortgage disbursements at an all-time high in September, auto loan disbursements at pre-Covid level in September, rural portfolio disbursements better than pre-Covid run-rate in September and Credit card spends recovered to 85% of pre-Covid levels in September.

- NIM at 3.57% in Q2 was lower than 3.69% in Q1, reflecting surplus liquidity with the Bank - cash and balances with RBI and other banks were higher 13% qoq and 90% yoy.

- Strong recovery in core fee income - at Rs31.4bn in Q2 was higher by 49% qoq and was just 10% lower yoy. Improved fee traction driven by increase in customer spending, borrowing and investment activity. Retail fees constituted 76% of total fees in Q2.

- Not much addition made to Covid-related provision pool which stood at Rs87.7bn (1.3% of Net Adv.). Bank seems to have maintained high core PCR of 79% despite some write-offs. Proforma GNPL/NNPL (including SC-order pending slippages and provisioning made on it) at 5.36%/1.12% respectively.

- The fund-based and non-fund based outstanding to borrowers rated BB and below (excluding nonperforming assets) decreased to Rs162bn from Rs171bn on sequential basis.

- Tier-1 capital adequacy ratio has increased to 17.9% on a standalone basis post the equity capital raising of Rs150bn.

Shares of ICICI BANK LTD. was last trading in BSE at Rs.392.55 as compared to the previous close of Rs. 399.9. The total number of shares traded during the day was 1062794 in over 16379 trades.

The stock hit an intraday high of Rs. 402.85 and intraday low of 388.1. The net turnover during the day was Rs. 419626051.

Source : Equity Bulls

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