>ICICI BANK: Q4FY12 Results update

Above estimates on strong core performance

ICICI Bank’s Q4FY12 core performance came in stronger than expected (Rs19bn, up 31% YoY) led by positive NIM surprise and lower provisions. Asset quality remains comfortable with 1) GNPA stable QoQ 2) slippages under control (~1%) 3) Credit costs under control at 75 bps and PCR healthy at ~80%. While the restructured portfolio has increased sharply by ~39% QoQ (with negligible pipeline), it still remains comfortable at 1.7% of advances. We maintain our fair value estimate and recommend Buy and believe that ICICI Bank is one of the safest bets in the current asset quality cycle that also offers decent upside.


■ NIM expands 30bps QoQ, Loan growth @ 17%: NII grew by a strong 23.7% yoy to Rs31.1bn led by a credit growth (17.3% yoy) and 30 bps QoQ expansion in reported NIM. The NIM expansion is can be traced to 1) higher loan yields due to late upwards re-pricing of loans 2) lower securitisation losses and 3) favourable loan mix. While the management guided for a 10-15 bps expansion in NIM for FY2013, we believe that NIM could surprise on the upside based on 1) lower share of low-yielding international book 2) benefit of lower losses on security receipts and 3) higher share of retail loans.


■ Asset quality stable, restructuring on rise but comfortable: Asset quality matrices continue to remain healthy with 1) GNPA improving by ~20 bps QoQ 2) PCR expanding to 80.4% 3) Slippage rate contained at ~1.0% and 4) credit costs contained at 75 bps. Meanwhile, the restructured portfolio has increased sharply by ~39% QoQ (with negligible pipeline), though still remains comfortable at 1.7% of advances.

■ Loan growth healthy but challenges remain: Overseas loan growth seems to have benefitted from rupee depreciation (up 26% YoY), which along with strong growth in SME and domestic corporate book drove the 17.3% advances growth. Meanwhile, retail book growth remained lacklustre (8% YoY). Given the anticipated weakness in overall domestic loan demand coupled with significant run-offs in overseas book, maintaining loan growth is likely to be a challenge for the bank during FY13.


■ Weak core fee income performance: Non-interest income grew by strong 36% YoY during the quarter led by sharp jump in treasury gains while fee income witnessed a contraction of ~3.5% YoY (on continued weakness in third party distribution and corporate fee income). For FY13, management guided for higher growth in core fee income.


■ Maintain Buy: Not withstanding the challenges on loan growth, we draw significant comfort on asset quality front led by a limited restructured portfolio, strong PCR and relatively conservative loan book build up in the past 2 years. Potential upside surprise on NIMs and contained credit costs should help the bank deliver RoA of ~1.5% for FY13 & FY14. At the current price, the stock trades at 11x FY14 EPS and 1.5x FY14 ABVS. We maintain Buy and retain the target price.


RISH TRADER