Wednesday, February 1, 2012

>ICICI BANK LIMITED: 3QFY12 RESULTS REVIEW- Impressive core; guidance even better

ICICI Bank reported operational 3Q earnings at INR17.3bn, above our as well as consensus estimates, on the back of better than expected core earnings progression driven by margin improvement of 10bps (2.6% to 2.7%) and dividend income of INR1.5bn from ICICI PruLife. Credit costs during the quarter were at 56bps while asset quality continued to remain stable. Bank management's positive guidance on asset quality and margins for FY13e were the key positives that emerged from the result.

■ Corporate, overseas advances drive loan growth; CASA on average balances improves
Loan growth for the bank was above systemic credit growth at 19% YoY (5% QoQ) driven by higher disbursements to large corporate (23% YoY) and overseas advances (38% YoY) while retail unsecured continued to show decline. Retail segment grew 1% QoQ due to higher disbursements in the Auto and CV segment. Margins improved 10bps QoQ to 2.7% as international NIMs improved by 31bps QoQ to 1.4% while domestic NIMs improved 6bps to 2.98%. Currently, the bank is not facing any funding issues overseas given that asset prepayments are likely to offset liabilities maturing in FY12. CASA based on average balances improved by 70bps to 39% as absolute CASA improved 10% QoQ. Management is guiding margins to improve to 2.8% in FY13e driven by domestic book and loan growth at 18% driven by retail and working capital loans.

■ Asset quality stable; management guiding credit costs at 75bps in FY13e
Asset quality continued to improve with both absolute GNPA and NPA decreasing by 3% and 2% QoQ respectively. Coverage ratio marginally improved to 78.9% while credit costs remained flat QoQ at 58bps. Net additions to the restructured book were at INR5.7bn in 3Q taking total restructured book to INR30.7bn (1.3% of advances). Incremental restructuring in 4Q is likely to be at INR13bn (GTL and 3I InfoTech). The bank has not classified Kingfisher as an NPL given that it is performing for the bank. Bank management is not seeing a significantly large restructured pipeline as of now and is guiding at credit costs at 70bps for FY12e and 75bps for FY13e.

■ Valuation and outlook
We maintain our earnings estimates for FY12e and FY13e as well as target price of INR1,320 with a BUY rating based on 2.3 FY13e P/BV on core book.